Strategy for Norwegian support of private sector development in
developing countries
Contents
Foreword
The Government has aimed from the outset to
present a new approach in its efforts for supporting private sector
development in developing countries. The point of departure for the
strategy has been the needs of the developing countries themselves.
The aim of the strategy has been to forge a basis for cooperation
on the developing countries’ own terms and with the most efficient
use of resources.
The current strategy reflects the Government’s
priority to support private sector development in developing
countries. This will help both to increase income and provide jobs
for poor groups, and create the necessary economic basis for the
countries’ own investments in health and education. A vigorous
private sector is also a major precondition for reducing aid
dependence and preventing an increased debt burden.
Within Norwegian development assistance, much
has been done to support private sector development, but the
efforts so far have lacked a strategic and integrated perspective.
This document embrace efforts from support for more active
participation in the global economy via stimulation of improved
macroeconomic and legal conditions to incentive schemes at the
micro level. An integrated approach implies regarding efforts at
these levels in relation to one another, and achieving better
integration of bilateral and multilateral efforts.
This imposes considerable requirements on the
authorities, on Norwegian commerce and industry and on other
players, but also offers good prospects of a more efficient and
less fragmented policy. With this strategy, we have therefore
acquired the instrument that has been lacking. The challenge will
now be to translate words into practical actions, remembering that
what counts is the results in the developing countries.
Hilde F. Johnson
Minister of International Development and Human Rights
With this document, the Government presents for
the first time an overall strategy for Norway’s support for private
sector development in developing countries. The main objective is
to promote economic growth and profitable production in developing
countries. This helps reducing poverty in these countries by
creating jobs and income for the population. It also creates tax
revenues that provide a basis for countries’ own efforts within
areas such as health and education. The purpose is also to prevent
further aid dependence and reduce the danger of an increased burden
of debt. The strategy will serve as a guideline for Norwegian
efforts to promote private sector development in developing
countries.
The strategy should ensure that development
cooperation in this area is rooted in the Government’s overall
development policy goals and priorities, such as poverty
orientation and recipient responsibility. At the same time, changes
in global and national framework conditions require new approaches
to supporting private sector development in developing
countries
The point of departure for the strategy should
be the needs of developing countries. Success will therefore be
measured in terms of the results in the developing countries. The
approach chosen reflects a recognition of the fact that the goal of
contributing to private sector development in the developing
countries demands a broad approach ranging from global measures for
improvement of the situation of developing countries in relation to
international trade via measures to improve framework conditions
for commerce and industry at national and local levels to direct
incentives for investments through institutions such as NORFUND. An
integrated perspective that regards the different allocations and
budget chapters in relation to one another will therefore be
important. This applies to country programmes, regional allocations
and global schemes as well as to the relationship between bilateral
and multilateral assistance. Globalization also implies closer
integration of trade policy and development cooperation policy.
Improvement of the developing countries’ potential for exploiting
the WTO system in relation to globalization is another important
objective of the new strategy.
The strategy emphasises close cooperation with
other donors and more efficient donor coordination. It is of
decisive importance that increased Norwegian efforts for private
sector development in developing countries are rooted in plans and
priorities of the government in recipient countries. Incentive
schemes for investments must be adapted to local conditions and be
well coordinated with the range of instruments for business
development in individual countries. Stimulation of long-term
investments that generate income and jobs in developing countries
will be given higher priority at the expense of export-oriented
schemes. The strategy will reflect the fact that agriculture and
primary industries still dominate the structure of industry in many
of the poorest developing countries.
Improvement of legal, institutional and
political framework conditions for private sector development plays
a central role in the strategy. Neither national initiatives nor
foreign assistance will function efficiently unless a minimum of
such framework conditions is in place. In many developing
countries, inadequate framework conditions are perhaps the greatest
barrier to sustainable economic development, and cause foreign
capital to flow to other, more predictable markets. Frequent
characteristics are inadequate and insecure legal guidelines, an
undue degree of bureaucracy that hinders private initiative,
corruption and inadequate financial policies. In many countries ,
poor physical infrastructure is still a great problem: potential
investors fear that goods and services will not reach the market in
time. The new strategy places considerable emphasis on surmounting
this kind of barrier to successful commercial and industrial
activity.
Projects and programmes under the auspices of
bilateral and not least multilateral development assistance will
help to build capacity and strengthen institutions, among other
ways, by exchanging experience with countries that have more robust
and open framework conditions for investments.
The strategy involves plans for continued active
international efforts to make incentive schemes for export and
investments as efficient as possible, and to enable the developing
countries’ own commerce and industry to succeed in winning
contracts,including contracts in the aid market. The Government
will therefore intensify its efforts in the OECD towards untying
development assistance, and will at the same time untie Norwegian
schemes for private sector development in parallel with other donor
countries active in taking initiatives in this process.
The strategy establishes principles and
guidelines for future Norwegian support for private sector
development in developing countries and presents recommendations
for making the strategy operational with an emphasis on efforts and
measures to:
- Promote investments in developing countries and encourage
Norwegian commerce and industry to invest and establish a long-term
involvement in developing countries.
- Reduce export subsidy schemes in parallel with other donor
countries active in international untying initiatives.
- Improve national framework conditions associated with
macroeconomic conditions, development of good governance and
improvement of institutional conditions, for example through a well
functioning financial sector.
- Help to
reduce marginalization of the poorest countries and
strengthen their capacity to exploit the potential of
globalization, while limiting its disadvantages.
- Help to strengthen
South-South trade and regional economic cooperation
between developing countries.
- Promote trade with developing countries by strengthening
current arrangements for import from developing countries to Norway
and by giving increased priority to general measures for increasing
trade with the developing countries.
- Reinforce support of
small and medium-sized enterprises, especially within
technical assistance and microfinance.
- Make active and targeted use of the
Norwegian knowledge base, including Norwegian commerce and
industry, where this matches identified and expressed needs in
developing countries.
As in the case of other development work, the
implementation of the strategy for private sector development will
imply using the Norwegian resource base, including Norwegian
commerce and industry, public institutions and NGOs, again based on
the needs of the developing countries. Norwegian commerce and
industry has a great deal of expertise that can be utilized in the
work on promoting productive activity and developing the private
sector in developing countries. Arenas will therefore be
established for cooperation on private sector development and
investment possibilities in developing countries. This will enable
the strengthening of the dialogue between Norwegian development
cooperation authorities and Norwegian commerce and industry, and
with appropriate players in recipient countries.
At country level, Norwegian embassies will play
a central role in ensuring that these efforts are made on the
national authorities’ own terms, and that they are coordinated with
the efforts of other donors, including multilateral institutions.
In order to “test” the recommendations of the strategy and rapidly
gain experience, implementation of the strategy will first be given
priority in selected pilot countries. The strategy entails that
private sector development will to a greater extent than previously
be an integrated part of Norway’s total development cooperation.
This will be reflected in the organization and priorities within
the cooperation. Quality assurance of the entire process, from the
planning of sector programmes and projects to implementation,
reporting and evaluation, will emphasize continuous assessment of
performance and necessary correction of the use of instruments.
This must be carried out in close coordination with other donor
countries
and multilateral institutions.
In the present document, the Norwegian
Government for the first time presents a comprehensive strategy for
Norway’s support for private sector development in developing
countries, following the Storting’s Recommendation S. no. 229
(1995-96) in response to Report no. 19 (1995-96) to the Storting “A
Changing World”. In preparing the new strategy, it has also been
natural to take into consideration recommendations regarding
private sector development in developing countries contained in the
report from the Commission on North-South and Aid Policies,
Official Norwegian Report (NOU) 1995:5.
The Commission on North-South and Aid Policies
and the Storting have emphasized the importance of increasing the
focus in development cooperation on private sector development in
developing countries . At the same time, there have been a number
of proposals concerning changes to current schemes as well as
proposals for new measures of importance for private sector
development. An increased focus on the needs of the developing
countries has recurred as an important premise for further support
in this area. In this connection, it is referred to guidance from
the Storting related to untying of Norwegian development
assistance, increased local procurements and the wish to support
microfinance schemes. The preparation of a comprehensive strategy
for Norwegian support for private sector development in developing
countries has provided an opportunity to deal with such measures in
a broader perspective.
The purpose of the strategy is to bring about
greater coherence in Norwegian efforts to stimulate private sector
development in the developing countries. The strategy is intended
to ensure that development cooperation in this area is rooted in
the Government’s development policy objectives and priorities, such
as the focus on poverty and recipient responsibility. The strategy
defines the framework for future development work in this area by
setting out priorities and guidelines for such efforts. The
strategy also includes specific recommendations for implementation
of the strategy.
In annex 3 to Proposition No. 1 (1998-99) to the
Storting (i.e the 1999 aid budget proposal), the Government
outlined general guidelines and premises that should form the basis
of such a strategy, and specified some main elements. Consideration
by the Storting, cf. Budget Recommendation S. no. 3 (1998-99),
demonstrated that there is support for the main features of the
Government’s approach. The present strategy document therefore
pursues further and consolidates the proposals presented in the
budget.
1.2 Changes globally and in the
developing countries
The international community is characterized by
conflicts of interest and by rapid change. Never have so many
people climbed out of absolute poverty as during the last 20–30
years. At the same time, the number of poor people is greater than
ever. The poorest 20 per cent in the world have witnessed a fall in
their share of the world’s total income from 2.3 per cent to 1.4
per cent during the last 30 years.
An increasing number of developing countries
liberalize their trade and the financial sector, and thereby become
more closely integrated into the global economy. In the 1990s, we
have witnessed a dramatic increase in private transfers of capital
to the developing countries. This has contributed to economic
growth in many countries, while others have been marginalized. For
example, Africa, apart from South Africa, has received only very
limited benefit from the increased flow of private capital. The
recent financial and economic turbulence in Southeast Asia has
illustrated the considerable challenges that are also involved in
closer economic integration. Although the effects of the turbulence
in the financial market are serious in the short term, Southeast
Asia has built up a formidable developmental lead in relation to
Africa.
Illiteracy among women, infant mortality and
population growth are at a level half of that in Sub-Saharan
Africa. At the same time, the gross national product per inhabitant
in Southeast Asia is almost double that of Sub-Saharan Africa.
Owing to the crisis in Asia, it is now expected
that the annual growth rate for the developing countries taken as a
whole during the period 1998–2000 will be approximately 3 per cent,
the same level as in the period
1991-1997, while, a year ago, the forecasts for
the same period were 4.6 per cent.
We see from this that the basis for growth is
fragile, a fact that has been illustrated by the crisis in Asia.
Moreover, in many of the world’s poorest countries, population
growth is still greater than economic growth. The only way of
ensuring a significant and permanent reduction of poverty is to
bring about a level of economic growth markedly greater than the
population growth, while ensuring that all parts of the population
benefit from this development. Many developing countries are also
encumbered with serious debt problems that prevent them from
concentrating their resources on development and improvement of the
living conditions of the population. In this connection, the
Government has presented a separate debt relief plan for the
poorest and most indebted developing countries. In the case of
these countries, private investments are also a scarcity factor.
Moreover, in large areas of Africa, the development of HIV/AIDS
represents a special challenge which already results in increases
in the cost of health services and training measures. The solution
of all these problems will require a joint effort by the
international community. At the same time, the developing countries
themselves must pursue a policy of establishing favourable
conditions for economic growth, responsible management, reduced
corruption and increased respect for fundamental human rights.
Considerable changes have taken place during the
last 10–20 years both globally and internally in developing
countries as regards framework conditions for development and views
on strategies for development and poverty reduction. The
globalization and increased integration of the world economy,
coupled with the implementation of economic reforms in individual
developing countries, has led to a general improvement of the
framework conditions for economic development and private sector
development. Deregulation, currency reforms, market orientation,
privatization and trade liberalization are keywords for the changes
that have taken place. These developments have presented the
developing countries with major challenges, while at the same time
providing them with new opportunities for economic development and
poverty reduction. However, the challenges, opportunities and
problems are not equally distributed among developing countries.
The poorest countries have the least favourable point of departure,
and have benefited only to a limited extent from private capital
flows. It is therefore a particular challenge for these countries
to take advantage of the development potential and to avoid being
marginalized in an increasingly globalized world economy.
In general, increasing emphasis is now placed on
market solutions and private sector development in developing
countries, partly as a result of a recognition that private sector
development and economic growth are decisive for lasting poverty
reduction, and, on given conditions, that the private sector is
capable of making a significant contribution to this. This
recognition is to a great extent based on experience of different
development models and strategies over the years. An increasing
number of developing countries have chosen a market-oriented
development strategy placing greater emphasis on private sector
development and a dynamic private sector. These changes determine
the conditions for development cooperation, which Norway as donor
must take into consideration. Simultaneously with the increased
emphasis on private sector development, changes have occurred in
the view of the role and involvement of the State in relation to
private sector development. Instead of participating actively in
economic activities, the State now concentrates more on
establishing favourable framework conditions for private sector
development, development of human resources and establishment of a
social safety net.
However, the State still plays a major role as
the only party capable of ensuring the existence of a framework for
democracy, good governance, human rights and a functioning rule of
law that creates confidence in state institutions and ensures
social stability. As well as establishing favourable conditions for
private sector development, the State must intervene and correct
the markets when desirable. In most developing countries today, the
State wishes to promote a dynamic private sector and attract
foreign investments. The changed role of the State also reduces the
need for aid transfers to government and parastatal enterprises.
There is instead an increased focus on setting up private
industrial and commercial activities, and on mobilizing national
and international capital for this purpose. A comprehensive
strategy for private sector development must take the developments
into consideration.
The clearly stated wish of the developing
countries for long-term investment and involvement by for-eign
commerce and industry, coupled with gradual changes in the
investment climate, has improved the investment potential for
foreign investors. However, in the poorest developing countries,
the flow of foreign investments does not match the level and scope
desired by the countries them-selves. This is because foreign
investors, including Norwegian investors, still regard the risk as
being too great. This may also be a result of the lack of
information and knowledge of business opportunities in the
developing countries. Norwegian efforts in this area must take such
matters into consideration in developing measures and
instruments.
1.3 Private sector development and
poverty reduction
There is broad agreement today that the creation
of jobs and incomes is a necessary condition for lasting poverty
reduction, and that economic growth over time must be larger than
the population growth. Moreover, profitable industrial and
commercial activities strengthen the economic basis for public
expenditure on health and education by contributing to increased
tax revenues. Investments in health and education are important
objectives in themselves, and play a major role in Norwegian and
international development cooperation. However, private sector
development and economic growth in developing countries will be
absolutely essential if they are eventually to be able to finance
the ambitious level of investments in health and education
currently planned by the countries themselves and by donors. The
absence of economic growth is almost certain to result in large
public budget deficits, a reduction in the basis for investment in
health and education and increased dependence on development
assistance.
Supporting private sector development involves
supporting measures that help to strengthen profitable production,
whether within primary industries, services or manufacturing. It is
not of decisive importance in which of these sectors production
takes place, but that the activity is profitable and yields more
than the resources input, in other words that it represents
economic growth. Whether this activity takes place in the private
or public sector is not important in itself, but developments in
the developing countries (as described in chapter 1.2 above), make
it natural to place an increased emphasis on the role of the
private sector in this connection1). Private sector development
includes activities in both formal and informal sectors2).
Private sector development and economic growth
are necessary for lasting poverty reduction, but are not sufficient
conditions for ensuring actual reduction of poverty. The degree of
poverty reduction and development that result from private sector
development and economic growth depend on the type of private
sector development and growth that takes place. The degree of
poverty reduction also depends on factors such as the share of
profits that remains in the developing country, how public funds
are used, income distribution, rights, and social and environmental
conditions. Such factors must therefore be included in an
assessment of the total developmental effect of private sector
development. It is nevertheless necessary to point out that in the
poorest countries, including Norway’s partner countries, where such
large parts of the population are poor, strong and lasting economic
growth is absolutely essential for putting an end to poverty.
Poverty reduction by means of increased tax revenues and public
support for health and education is also completely dependent on
private sector development resulting in taxable profits, on the
existence of a functioning system of taxation, and on taxes
actually being collected.
The strategy must take into consideration the
decisive importance for poverty reduction of developing the
agricultural sector in the poorest countries. Efforts for private
sector development must therefore reflect the key role of
agriculture as a provider of employment and income and as a
supplier to agro industries. The emphasis in the strategy on
satisfactory framework conditions for economic activity in general
is also highly relevant for this sector. It is important to
associate agriculture more closely with other parts of the economy
and to ensure better coherence between our actions as donors in
different areas. Poverty alleviation, for example, is closely
associated with improved food security. Since food security is
associated with access to land, credit and means of production,
this cannot be separated from general conditions for economic and
social development.
1.4 Premises of development
cooperation policy
The strategy for support for private sector
development defines the frameworks both for supporting authorities
in establishing satisfactory framework conditions for economic
development, and for more direct support for the activities of
various players in promoting productive activities in developing
countries. However, it must be borne in mind that Norway and other
donors can play only a limited role in relation to achieving
private sector development in developing countries. The most
decisive factors for the potential for private sector development
in developing countries are the policies of the countries
themselves, the framework conditions for local commercial and
industrial activities, and international framework conditions for
private sector development.
The strategy for development cooperation in this
area has been prepared in accordance with Norwegian development
policy objectives and priorities (cf. Proposition No. 1 (1998–99)
to the Storting, the aid budget). This entails a strong emphasis on
the poorest African countries, a clear recipient orientation based
as far as possible on the plans and priorities of the recipient and
a reduced emphasis on tied arrangements 3). At the same time,
support for private sector development is to be promoted while
paying due regard to issues concerning human rights, environmental
issues, women and gender equality, in accordance with the general
requirements regarding development projects that receive Norwegian
support.
Income potential for women plays an important
part in poverty reduction of. In many developing countries, the low
social and economic status of women makes it particularly difficult
for them to participate in economic activities. At the same time,
measures within private sector development must reflect the fact
that in many developing countries women are responsible for
considerable economic activity within agriculture, small-scale
industry and trade. This must be given special consideration. A
fundamental assumption of the strategy is that this is best taken
care of by improving the general framework conditions for economic
activity even though there may in some cases be a need for more
targeted schemes for women. The potential for increasing the number
of jobs for women is particularly great in small-scale industry and
crafts. This form of activity often employs simpler technology than
large industrial enterprises, and involves low establishment costs.
The question of whether or not it is appropriate to support special
schemes or financing mechanisms for female entrepreneurs has to be
decided on the basis of country-specific circumstances. These
circumstances must be taken into consideration in the planning of
small-scale industry measures.
As regards
environment, the same guidelines that apply to Norwegian
development cooperation in general apply to measures implemented in
accordance with the strategy for private sector development. This
applies to the whole production process from extraction and
transport of raw materials to the finished product, including the
use of energy and chemicals. Successful effectuation of a
sustainable production cycle is dependent on taking these aspects
into consideration when planning production. It is easier to
satisfy the growing international demands for environmentally
correct goods and services if one begins by planning
environmentally benign production and products. The Norwegian
government’s Asia plan includes a special priority in the
environmental area involving the financing of projects that prevent
damage to the environment and promote sustainable production
processes. It is possible to combine different objectives within
industrial and commercial cooperation in areas with indirect
relevance for private sector development. An assessment of the Asia
plan will be available in the spring of 1999.
The strategy includes measures to safeguard
considerations regarding trade union rights and other human rights
issues, among other ways, by complying with adopted international
conventions and following these national efforts. This also
involves raising awareness of the importance of combating child
labour and ensuring that partners and suppliers do not make use of
child labour. In relation to more general human rights
considerations, KOMpakt (the consultative body for human rights and
Norwegian economic involvement abroad) is an appropriate forum for
raising relevant issues for discussion between authorities,
commerce and industry and other players.
Norwegian development assistance is mainly
untied, i.e. Norway does not impose conditions that goods and
services should be purchased from Norway. Industrial and commercial
cooperation, technical development assistance and support via
Norwegian NGOs have represented exceptions to this principle. The
principle of not tying development assistance must be viewed in
relation to the principle of recipient responsibility. The general
objective of untying development assistance motivated by the wish
to increase the effectiveness of the assistance is a major premise
of development cooperation policy. On several occasions, the
Storting has affirmed that Norwegian development assistance shall
be untied and shall be based on competition. Both in view of this
and in view of the efforts of the OECD to untie all development
assistance to the least developed countries, the strategy prepares
for a future range of instruments with no emphasis on tied schemes.
The strategy is therefore also founded on the principle that
current Norwegian tied schemes should be phased out. However, this
should be carried out at the same pace as progress is achieved
internationally through changes in the practice followed by other
countries.
1.5 The role of Norwegian commerce
and industry as a part of the Norwegian resource base
Increased emphasis on private sector development
in Norwegian development cooperation reflects the developing
countries’ own priorities and their clearly stated wish to
cooperate with other countries in promoting private sector
development. The developing countries welcome contributions to this
through contact with foreign commerce and industry and through
access to technology, capital and markets.
Norwegian commerce and industry constitutes a
natural part of the Norwegian resource base on a par with other
parts of Norwegian society, such as research institutions and NGOs.
In view of the priority given by developing countries to private
sector development, the expertise and experience of Norwegian
commerce and industry is especially relevant.
There are moreover areas of development
cooperation where the involvement of Norwegian partners results in
positive ties and involvement by the Norwegian society, which is of
value in itself. Such co-operative relations enable the
dissemination through practical work of Norwegian values, Norwegian
working environment standards and the Norwegian social model. This
will also be the case in the area of private sector development in
developing countries. Through their presence and through their
contribution to local economic growth, Norwegian companies will
stimulate an economic development which in the long term may lead
to independence of development assistance. At the same time, such
activities will broaden the range of contacts between Norwegian
society and the developing countries. Moreover, through involvement
of the private sector in recipient countries and in Norway we wish
to exploit the advantages of this sector to think in terms of
profitability and to develop viable commercial activities. Such
considerations make Norwegian commerce and industry a natural
partner in the efforts to achieve the overall objectives of
development cooperation.
The fundamental premise represented by the needs
of the developing countries must play a decisive role. All
procurements in connection with development assistance projects
must be made at competitive prices. Competition in the private
sector and the wish for future contracts ensures a reasonable
relationship between price, quality and professional expertise. As
explained in Proposition No. 1 to the Storting (1998–99), the
Norwegian follow-up of international initiatives for untying shall
be carried out in such a way as not to weaken the total range of
development cooperation instruments. Untying is not an objective in
itself and will be assessed in relation to the total achievement of
objectives.
In some cases, one has to be realistic and
accept that corruption and malfunctioning of markets still create a
competitive situation that precludes the correct management of
Norwegian funds by means of normal international competitive
tendering. At the same time, improvement of such framework
conditions is a primary objective of the new strategy.
Investment in developing countries is an area
where cooperation with Norwegian commerce and industry is of
especial interest. The developing countries clearly state a wish
for foreign investments, and are positive to involvement by serious
foreign investors, including Norwegian. Experience shows that the
bottleneck lies not only in the investment potential in the
developing countries, but that there are limitations to the
willingness of foreign investors to gamble on something they
perceive as being too hazardous in relation to the yield that can
be expected. If we are to deal with this problem through Norwegian
development cooperation, in addition to working to improve
framework conditions in the developing countries, we must encourage
and motivate foreign investors, not least Norwegian, to invest in
developing countries. In consistency with the principle of untying,
incentive schemes for investments should be open for international
competition. At the same time, factors such as proximity and
knowledge of the range of instruments provide Norwegian commerce
and industry with a good potential for benefiting from such
schemes. The dialogue between Norwegian development cooperation
authorities and the Norwegian business community should be
strengthened to ensure appropriate structuring and application of
the appropriate instruments. Moreover, increased trade between
Norwegian companies and companies in developing countries may open
the eyes of Norwegian commerce and industry to the investment
potential that exists in these countries.
1.6 Current development assistance
for private sector development
The experience of Norwegian development
assistance for private sector development is described in more
detail in a background report for this strategy. It shows that
direct and indirect support for private sector development has
constituted a considerable part of Norwegian development
assistance. However, it is difficult to give a precise estimate of
the proportion of the development assistance that has been used for
private sector development, since both budgeting and reporting have
placed this type of measure in the category ‘economic development’,
which is somewhat broader than private sector development 4). It is
also difficult to determine the extent to which this support has
actually resulted in the desired developmental effect. The efforts
so far have been too fragmentary and too little poverty-oriented.
Nor is there any certainty regarding the extent to which these
efforts have resulted in establishments in the form of jobs and
economic growth.
During recent years, approximately one-third of
Norwegian bilateral development assistance has been used for
economic development. As illustrated by table 1, the proportion
used for economic development was 33 per cent in 1997, whereas the
figure for the two previous years was 36 per cent.
However, the proportion of Norwegian development
assistance used for economic development varies considerably
between different channels. While approximately half the assistance
over country and regional allocations is applied to economic
development, the corresponding proportion for commercial and
industrial cooperation is 78 per cent and for assistance via NGOs,
27 per cent.
Support for economic development is distributed
between several sectors and types of activity. In 1997, the largest
proportion of the total development assistance in this area, 51 per
cent, was for public utility functions (e.g. infrastructure), 22
per cent was for agriculture and fisheries, 10 per cent for
regional development and 10 per cent for manufacturing, mining and
craft enterprises.
The proportion of Norwegian multilateral
development assistance which is used for economic development,
including private sector development, is more difficult to
estimate, since the major part of this assistance consists of
general grants to these organizations. The proportion that is
applied to economic development varies considerably between
different multilateral institutions dependent on their mandate and
priorities. Moreover, classification of measures varies from
organization to organization. While the proportion of the World
Bank’s loans for economic development constitutes 60–70 per cent,
the corresponding figure for the UNDP is 30 per cent. In the case
of most other UN organizations, neither economic development nor
private sector development is used as a separate category and, in
several cases; the actual proportion is probably close to zero.
However, it is possible to estimate the
proportion of the Norwegian earmarked contributions, i.e. the
Norwegian cofinancing with multilateral institutions (the World
Bank, the regional development banks and the UN system) that is
applied to economic development. The definitions differ somewhat in
relation to those of NORAD, but, in 1997, the proportion of
cofinancing that was applied to economic activity and
infrastructure was 24 per cent. As shown in table 3, this
proportion has fallen markedly in recent years. This is partly
because of the increased priority given to support for health and
education in Norwegian development cooperation in general as well
as in the distribution of cofinancing funds.
1) Neither in the context of the OECD nor in our
own definition, it is of decisive importance whether the
activities, which OECD documents refer to as “Private Sector
Development” and which Report no. 19 to the Storting (1995–96)
refers to as “productive sector”, are privately or publicly owned.
It is however important that the activities are financed by the
sale of own production and not over public budgets. In practice
however, they consist chiefly of private sector activities. In
order to avoid misunderstandings, the term “Strategy for the
Norwegian support of Private Sector Development in developing
countries” is used as the English translation of the strategy’s
Norwegian title of “Strategi for støtte til næringsutvikling i
Sør”.
2) Cf. the definition of ‘Private sector
development’ in the report from the Commission on North-South and
Aid Policies, Official Norwegian Report (NOU 1995:5) p. 33.
3) Tied schemes are financing schemes where the
procurement of goods and services is tied to procurement from a
specific country or region, in this case from Norway.
Agriculture and private sector development in Zambia.
Like a number of African countries, Zambia has a
great potential for agricultural production. As well as enjoying
favourable natural conditions, the sector has clear economic and
social advantages, since it provides jobs and income potential for
many people while at the same time contributing to increased food
security. However, the development of agriculture in Zambia has
been adversely affected by the economic framework conditions, which
favoured the production of maize. Other agricultural production
stagnated because of extremely unfavourable policies and a greatly
overvalued currency. The State supported maize production by
subsidizing chemical fertilizers and by purchasing produce at
regulated prices far higher than the market prices. Following
economic reforms in 1991, the Zambian authorities made efforts to
bring about a positive development of the agricultural sector, and
implemented a number of structural reforms. However, these reforms
have shown limited results. It has proved very difficult to phase
out the extensive public intervention in the market for maize and
chemical fertilizers, which has hindered the emergence of private
players in such areas as distribution of chemical fertilizers.
Norway has supported agricultural development in
Zambia for a long time, particularly in the northern province, a
sparsely populated area with a great potential for agriculture. The
Norwegian assistance has given priority to the development of
expertise, cultivation methods and fundamental infrastructure.
Evaluations of the support have indicated that fundamental economic
and market conditions have not been in place in the province, and
this has played a major role in limiting the effects of the
Norwegian programme on agricultural production and on the incomes
of small farmers.
The Zambian authorities intend to make
agriculture a key sector for attracting investments, both from
repatriated Zambians and from other sources. The development of a
viable commercial agricultural sector is one of the most important
means available for further development of the Zambian economy and
for combating poverty. In Zambia, agricultural development is
therefore the best private sector development. If this could be
successful, the future for Zambia would be, if not rosy, at least
green.
2. Stimulating private sector
development in developing countries
2.1 The need for a comprehensive
approach
The slow progress towards a dynamic commercial
and industrial sector, in spite of considerable efforts on the part
of the countries themselves and the donors, is due to a number of
factors, some of which are beyond the control of the countries and
the donors. Moreover, expectations regarding development
cooperation in this area have often been unrealistically high.
Factors such as international trade, macroeconomics, good
governance, legislation, sectoral policy, market conditions,
technology, capital and competence – and not least the inter-action
between them – all make important contributions to deciding whether
a given enterprise or project will be economically viable and
provide permanent jobs for its employees.
A comprehensive approach is therefore necessary
if external assistance is to contribute effectively to stimulating
private sector development in developing countries. Well founded
establishments of, for example, financing schemes or programmes for
transfer of technology often fail to provide the desired results as
long as other critical factors and conditions are not satisfactory.
The acknowledgement that major efforts are necessary does not
necessarily imply that Norway is to do something in all areas in
all countries, but rather that the efforts made in individual
countries should be directed towards a selection of the areas
mentioned and that this selection should be based on
country-specific analyses and assessments. Likewise, the efforts
should be coordinated with other donors and multilateral
institutions, thereby ensuring an integrated approach.
2.2 Factors at several levels
decisive for private sector development
The various factors that are decisive for the
potential for private sector development in a country are often
grouped on four levels7):
- International framework conditions in the form of access
to international markets, regulations for international trade,
debt, ODA levels, etc.
- Macroeconomic conditions in the individual country.
- Physical and institutional infrastructure and good
governance, which, broadly speaking, comprise both the
physical infrastructure and the institutional and legal
framework.
- Factors at the micro level (enterprise level) such as
access to technology, expertise, capital, manpower,, guidance,
etc.
A more thorough discussion and analysis of these
topics were presented in a background report for the strategy for
private sector development, October 1998 (Norwegian only). However,
there is reason to emphasize certain factors as especially
important in this connection.
International framework conditions in the form of access
to international markets, regulations and standards for
international trade, international debt relief schemes and the
levels of assistance provided by rich countries are of major
importance for the sales prospects of products marketed by the
develop-ing countries and for access to foreign capital and
technology. Globalization gives rise to opportunities as well as to
challenges and problems. The great challenges associated with
globalized and integrated markets have been demonstrated by the
recent turbulence in international capital markets and economic
tremors in a number of developing countries.
The challenges apply mainly to the poorest
developing countries, which have not been able to benefit
sufficiently from the welfare enhancements that other countries
have derived from increased trade. It is also important to ensure
that the developing countries have the necessary knowledge of the
potential that lies in international trade agreements and the
resources to be able to make use of this. Furthermore, a regional
perspective on private sector development is gaining increasing
relevance, not least in view of the development of more powerful
regional organizations for economic cooperation. Strengthened
regional trade relations and increased South–South trade are
important for improvement of the external framework conditions for
promoting private sector development in developing countries. This
is of major importance for all regions where Norway provides
assistance; in Africa, Asia and Latin America. Where Norway is
concerned, the potential for assisting in such a development is
especially relevant in southern Africa, since several of our most
important partner countries are located in this region, and this is
a region where Norway has a major economic and political
involvement.
Macroeconomic conditions in individual countries in the
form of balanced public budgets, satisfactory external balance and
acceptable rates of inflation and interest are factors of decisive
importance for whether or not domestic and foreign investors regard
the investment climate as favourable. Satisfactory macroeconomic
framework conditions are essential to sustainable private sector
development and to ensuring that other support for private sector
development has a positive effect. The World Bank’s study
“Assessing Aid” from 1998 emphasizes the importance of a
satisfactory macroeconomic framework and sensible economic policies
for the efficient functioning of foreign assistance. In countries
where the macroeconomic conditions for economic activity are a
major problem, efforts must be directed towards improving these.
Al-though much has been done to improve the macroeconomic
conditions in many developing countries, continued implementation
of economic reforms is still necessary in most developing
countries.
The physical and institutional infrastructure and the degree of
good governance in a country are of major importance for
private sector development. Satisfactory and stable conditions for
investments are dependent on the way markets function, including
the capital market, and the existence of a functioning legal
framework. Other decisive factors are the degree of corruption, the
level of physical infrastructure in the country, and whether or not
there are functioning organizations able to strengthen the dialogue
between the business community and the authorities as well as
between the social partners.
In many countries, weak physical and
institutional frameworks are the greatest barriers to private
sector development. The financial crisis in Asia in 1997–1998 can
partly be explained by weak institutions, especially in the
financial sector, and has illustrated the dramatic consequences
that may result from poorly functioning institutions, the lack of
“transparency” and corruption problems. Increasing importance is
therefore attached to the need for good governance and the
improvement of institutional conditions in a broad sense. Physical
infrastructure, such as energy supplies, transport systems and
telecommunications are still poorly developed in many countries,
and therefore represent obstacles to private sector development.
There is also a need for regulations and government institutions to
be adapted to the needs of a dynamic private sector development.
Stable and predictable legal frameworks for commercial activities
and the necessary confidence in the legal system are still lacking
in a number of developing countries. Donors have probably
underestimated the importance of institutions in the financial
sector for the development of a viable and sound commercial and
industrial sector. Support for the development of physical
infrastructure has constituted a major part of Norway’s bilateral
support for private sector development. In future Norwegian
development cooperation in this area, considerably greater
importance should be attached to support for institutional and
legal infrastructure.
At the micro-level, it is of decisive importance for
individual enterprises and investors in developing countries that
they have access to necessary technology, expertise, capital and
manpower. Measures at the micro-level in relation to individual
enterprises and investors are the most direct way of supporting
private sector development. These are the kind of measures usually
associated with support for private sector development.
Particularly in the case of small-scale producers, which form the
backbone of the economies of many developing countries, poor access
to the above factors constitutes a significant restriction on
investments, market entry and expansion. Support schemes for
small-scale producers have often proved to have positive
developmental effects. Various microfinance schemes have also made
commercial activities possible for many people for whom this would
otherwise not have been possible. However, experience shows that
the potential developmental effect of such measures alone is
limited. It is necessary to view them in relation to other measures
for the benefit of small enterprises, including measures for
promoting a well functioning financial sector.
Factors at all these levels are of decisive
importance for the success of individual investments and projects
and thereby for the possibility of achieving a dynamic private
sector development in a country. In order to strengthen the
possibilities for private sector development, efforts are therefore
in most cases necessary at several levels. If certain factors
particularly hinder private sector development in the country
concerned, efforts should be concentrated on these. Decisions
concerning the selection of concrete measures to be implemented
must be based on analyses of the main obstacles for private sector
development in any given country and on how other countries and
multilateral institutions organize their assistance. Decisions must
then be taken as to what channels are most appropriate for dealing
with the challenges and problems given priority.
2.3 Channels for supporting private
sector development
Support for private sector development in
developing countries can be provided in several ways and via
different channels. The main channels for Norwegian development
assistance are multilateral institutions, bilateral channels
(including NORFUND) and NGOs:
Multilateral organizations such as the UN system, the WTO,
the World Bank and the regional development banks are major
channels and partners for Norwegian development assistance, also in
relation to private sector development. Cooperation with these
organizations takes a number of different forms, e.g.
- Participation in international negotiations
- Active participation in the governing bodies of individual
organizations to influence the organizations’ general policies and
strategies, e.g. the World Bank’s private sector strategy and its
policy on support for economic reforms and good governance
- Participation in and support for special programmes and
coordinating mechanisms under the auspices of multilateral
organizations
- Assistance to developing countries to enable them to
participate actively in relevant international organizations
themselves
- Support for the activities of the organizations in individual
countries:
- at the overall policy level, by providing
support for economic reform programmes, development of good
governance and planning of sectoral policy in different areas
- in relation to improvement of the framework conditions for
commercial activities;
- through support of the organizations’ individual projects
within capacity building, infrastructure, microfinance, etc.
Bilateral channels, which in practice means Norway’s
assistance via NORAD, can be used for:
- Dialogue concerning priorities and policy of indi-vidual
recipient countries in areas of major importance for private sector
development
- Support for individual projects or programmes within
infrastructure, capacity building and support for small and
medium-sized enterprises, including microfinance and business
counselling.
The role of NORFUND is to supply capital
directly to individual projects in developing countries through
joint ventures between enterprises in
Norway and enterprises in developing countries,
and indirectly through contributions to local investment funds in
developing countries, which then invest in individual projects.
NGOs can for example be used to carry out
income-generating projects at the micro-level in developing
countries and as a channel for support to microfinance schemes.
2.4 Criteria for selection of aid
channels
A number of factors must be taken into
consideration when selecting channels for assistance for private
sector development.
The following types of effort clearly belong in
specific channels:
- Efforts to improve international framework conditions and
standards are primarily appropriate within the framework of the
WTO, the Bretton Woods Institutions and different parts of the UN
system.
- Efforts to motivate and stimulate Norwegian enterprises to
involve themselves in developing countries belong mainly in NORAD
and NORFUND. The guarantee scheme of the Norwegian Guarantee
Institute for Export Credits (GIEK) for export to and investment in
developing countries will also be an important instrument for
reducing the risk involved for Norwegian enterprises.
With respect to other types of measures covered
by the strategy, the choice of channel is more open:
- Investments in local investment funds that parti-cipate with
risk capital in investment projects can, for example, be made via
NORFUND, the Inter-national Finance Corporation of the World Bank
(IFC) or the regional development banks’ private sector
initiatives.
- Capital transfers, technical assistance and other support for
small and medium-sized enterprises can be given under the auspices
of the IFC, the World Bank, the regional development banks, the UN
organizations and via NORAD’s various schemes.
- Support for capacity building and institutional development
that is important for private sector development may be provided
via the World Bank, the WTO, the UNDP, NORAD or NGOs.
In the latter cases, selection of channels and
mechanisms should be based on assessments of the comparative
advantages of the various channels and mechanisms used to determine
where the greatest effect can be attained. However, it is often
difficult to determine whether an organization in one of these
fields is preferable to others. Furthermore, there may be good
reasons for providing some types of assistance through several
channels, for example investment support, microfinance, etc. In
such cases, efforts must be made to attain the greatest possible
synergy effect between the efforts via various channels.
Support for private sector development can be
provided related to the different levels described in 2.2, above,
and via the channels described in 2.3. Possible measures and
mechanisms for support of private sector development can therefore
be classified and illustrated in relation to the four levels and
the various channels described above. The figure on page 17
illustrates the relationship between the selection of level and
channel. The figure is greatly simplified and in no sense gives a
complete picture of the mechanisms that exist, but provides
examples of mechanisms and measures for support of private sector
development in relation to the various levels and channels.
The strategy is largely concerned with the
choice of levels and channels appropriate for the bulk of Norwegian
investments, and the types of investment and support that shall be
given priority at each of the levels.
3. Norwegian efforts to strengthen
private sector development in developing countries
3.1 Main priorities
Norwegian development cooperation for private
sector development has previously taken the various channels within
Norwegian aid as its principal point of departure before
considering what can be done within each channel. The new strategy
is based on considering the needs of the developing countries
before selecting appropriate channels and instruments. Within
bilateral development cooperation, a country-specific analysis of
the most important obstacles to private sector development will
form the starting point for considering where development
assistance can and should be provided. At the various levels, an
assessment must then be made of what Norwegian development
assistance must do more or less of and what must be done
differently. This applies to content, as well as to the selection
of channels and support mechanisms. Strong emphasis must be placed
on the priorities of the recipient countries, on other countries’
development assistance and on the wish to strengthen donor
coordination.
The approach adopted in the strategy reflects a
recognition of the fact that effective support of private sector
development in the developing countries requires a broad approach
and is not a matter of isolated initiatives in relation to specific
chapters of the budget. It is important to make use of relevant
multilateral institutions and to cooperate with these in order to
achieve objectives at both global and national levels. However,
Norway cannot do everything in all countries. The limited funds
that Norway is able to contribute should go to selected priority
areas. The strategy has the following main priorities:
- Reduce marginalization: Help to improve international
framework conditions and reduce the marginalization of the poorest
countries, thereby reducing the risk they run of failing to benefit
from the development potential that lies in globalization.
- Strengthen South–South trade: Strengthen the regional
perspective and trade between developing countries, which is an
underexploited potential.
- Make comprehensive efforts at country level: Estab-lish a
comprehensive country-specific perspective for support of private
sector development based on identification of bottlenecks, needs
and priorities in individual countries. Improve the consistency and
synergy between efforts at different levels and through different
channels.
- Improve framework conditions: Continue to support
macroeconomic reforms, while placing greater emphasis on supporting
the development of good governance and improving institutional
conditions, such as a well functioning financial sector as well as
organizations and trade unions.
- Promote investments: Actively promote investments in
developing countries, particularly in the poorest countries.
Stimulate long-term investment and involvement by Norwegian and
international commerce and industry.
- Promote trade with developing countries: Strengthen
current arrangements for import from developing countries to Norway
and increase the priority of general measures to increase the
export and trade of developing countries.
- Support untying: Continue active Norwegian support for
untying of development assistance, both in the OECD/DAC and through
the gradual untying of Norwegian development assistance schemes in
step with other donor countries active in this process.
- Increase the use of local procurement: Promote local
procurement in aid-financed projects.
- Make active and targeted use of Norwegian expertise:
Actively utilize the Norwegian resource base, including Norwegian
commerce and industry, when this meets identified and expressed
needs in developing countries. Strengthen the dialogue between
Norwegian development cooperation authorities and Norwegian
commerce and industry concerning private sector development and
investment opportunities in developing countries.
To follow up these overall priorities, choices
and priorities are made at different levels as part of the strategy
concerning the kinds of measures that should be given priority and
the criteria that the selection of channels shall be based on. The
strate-gy is not intended to present a detailed list of measures
within specific mechanisms and channels. To the extent that this is
mentioned, it is intended as examples of what the new strategy will
entail in practice.
3.2 Priorities in different
areas
3.2.1 Reducing marginalization and improving international
framework conditions
Factors outside the borders of the individual
development country are of decisive importance for the potential
for private sector development. Norway will therefore give high
priority to efforts to improve external framework conditions within
the strategy for private sector development both at global and at
regional levels. The improvement of international framework
conditions must primarily take place via the multilateral system,
with an emphasis on improvements in regulations that apply to
trade, investments and financing, paying particular attention to
the interest of the poorest countries. Norway will increase its
support of the poorest countries’ interests in international
negotiations concerning these issues in appropriate fora.
The developing countries still have a
disproportion-ately small share of the world’s trade in goods and
services. Improvement of this situation is dependent on access to
markets, provision of development assistance and implementation of
the WTO’s provisions concerning special and differential treatment.
As far as market access is concerned, there is still a need for
reductions in tariffs and non-tariff barriers, via the GSP systems
of individual countries and/or via WTO-committed schemes.
Particularly within the agricultural sector, the poorest developing
countries see a consider-able export potential that can constitute
a valuable contribution to private sector development in developing
countries.
However, the developing countries must also
improve their ability to exploit the export potential that exists,
which will require coordination of national reforms, development of
the necessary infrastructure, training of manpower and targeted
development assistance. Both Norway and different international
fora place increasing emphasis on directing technical assistance in
this area towards the factors that prevent the exploitation of
export potentials.
The WTO’s agreements include a number of
provisions concerning special and differentiated treatment of the
developing countries. There are also special provisions concerning
the least developed countries. Within the WTO, requirements thus
vary concerning what shall be implemented and how rapidly the
implementation shall be carried out. There is currently a debate
going on the implementation of WTO agreements. As part of this
work, it is natural to consider the need for a clarification of the
WTO’s references to the need for special and differentiated
treatment of the developing countries, so that the agreed positive
special treatment can be implemented as effectively as possible. In
addition, Norway is making efforts to bring about a discussion in
the WTO on the relations between fundamental labour standards and
trade.
As well as working to improve the general
framework conditions, it is necessary to support more direct
measures in the form of trade-related technical assistance to the
poorest countries so that they can make full use of current
schemes. In this connection, six international organizations have
established what is known as the “integrated frame-work” for
trade-related technical assistance to the least developed countries
(LDCs). Norway has given its support to the joint integrated
technical assistance programme for selected Sub-Saharan African
countries, which is part of the integrated framework. It would be
natural to continue and extend this type of measures. Norway has
announced in its development aid budget for 1999 that it will
support the establishment of an independent legal advisory centre
to assist the poorest develop-ing countries and others in trade
disputes, so that that they can better utilize the WTO dispute
settlement mechanism.
An important part of the efforts to integrate
the poorest developing countries into the world economy is the
continued work to enable these countries to achieve real and
increased shares of the Norwegian market. The Norwegian GSP system
plays a major role in this respect. Tariff reductions or exemption
granted by the GSP scheme are used to stimulate increased imports
from the developing countries, and particularly from the least
developed countries.
As regards foreign direct investments in
develop-ing countries, these have so far been regulated via
Bilateral Investment Treaties (BITs). Approximately 1,800 such
agreements have been concluded, mainly between an OECD country and
countries outside the OECD area. More uniform international
regulations for investments would create increased transparency for
investors and provide more stable and predictable conditions. In
this connection, it would be important to look more closely at how
the interests of the developing countries, particularly the poorest
countries, could be attended to within a framework of multilateral
regulations in the investment area. The WTO has commenced work on
trade and investments, where the issue of whether investments
should be covered by WTO agreements is a topic for discussion.
3.2.2 Strengthening the regional perspective and South–South
trade
Increased trade and closer economic cooperation
between developing countries represent a considerable potential for
development, but realizing this potential represents a major
challenge. Support for regional measures that create a common frame
of reference across national borders would establish favourable
conditions for regional trade and integration, and should therefore
be given priority. Institutional and political reforms in
individual countries will also play a significant part in reducing
the barriers to economic relations between poor countries and
regions. Positive developments in this direction have already taken
place in many regions. It is moreover important that efforts for
private sector development in individual countries are assessed
also in a regional perspective. This applies for example in
connection with the implementation of economic reform processes in
these countries.
Support for such measures is recommended first
of all in southern Africa, where measures to strengthen the
economic and industrial policy should be given priority. This may
involve measures within the development of infrastructure as well
as measures to reduce trade barriers and increase competitiveness
through standardization and quality assurance. On the basis of
experiences gained in this region, Norway should consider how to
support the region’s own initiatives, for example within the
framework of SADC, which may help to bring about more balanced
development. One of the priority areas for future cooperation
between Norway and South Africa is regional cooperation, and this
work can function as one approach for supporting such initiatives.
Measures within the framework of SADC’s cooperation in the area of
finance and investment and in other relevant areas should also be
considered in this connection.
3.2.3 Promoting integrated efforts at country level
The process of formulating the strategy has
illustrated the need for a broad range of instruments to deal with
the challenges and prospects faced by each individual country. An
integrated perspective on efforts at different levels and through
different channels is of decisive importance for the results
attained. At country level, the strategy must be implemented on the
basis of country-specific needs and in response to the wishes
expressed by the developing countries themselves. This will be
achieved by:
- analysing the weaknesses and bottlenecks that hinder the
development of a dynamic private sector in the country
concerned,
- agreeing with the country’s authorities, the private sector and
other bilateral and multilateral donors on the measures that shall
be given priority in order to stimulate private sector development
and, on this basis,
- selecting priority areas, mechanisms and channels for Norwegian
support of private sector development.
These activities will be fundamental in the
preparation of integrated private sector development programmes in
those of our partner countries where this is appropriate. The
programmes will form an integral part of NORAD’s activities in
individual countries, and will primarily be concerned with the most
serious obstacles to private sector development in these countries.
This does not imply large independent Norwegian programmes, but
activities that are coordinated with the efforts of the authorities
themselves and with other donors in the area. In some countries, it
may be appropriate to channel funds via other bilateral donors and
multilateral institutions. What is essential is that Norway is
realistic in selecting functions and tasks to embark on, and that
Norwegian efforts form part of an integrated approach, which will
ensure better coordination of the efforts in individual countries
through different channels and mechanisms, while strengthening the
synergy effect of the measures that are carried out.
This approach does not automatically imply an
increased emphasis on private sector development in all Norwegian
development cooperation programmes, but is rather intended to form
the basis for a more integrated approach.
In connection with the aid budget for 1999, it
was proposed to start pilot programmes to implement the new
strategy in selected countries where circumstances are favourable.
This activity will enable the immediate testing of some models for
implementation of the strategy and involvement of the authorities
of the partner countries as well as commerce and industry.
Integration of the main elements of the strategy into development
cooperation in general is planned to take place during the course
of two to three years.
Pilot programmes may also provide a basis for
testing the possibility of achieving better integration between
productivity-promoting activities, for example within agricultural
production and mea-sures for export and market access for such
products. At the same time, it will be important to stimulate
Norwegian commerce and industry to involve itself actively in the
planning as well as the implementation of pilot programmes.
3.2.4 Improving macroeconomic framework conditions
Macroeconomic framework conditions still need to
be improved in many developing countries. Priority will therefore
still be given to supporting the implementation of economic reform
programmes. Donors can support reform processes, but without
ownership by recipient governments and without a willingness on
their part to implement reforms, the efforts of external players
will be of little use. The implementation of the Norwegian debt
relief strategy makes an important contribution to the improvement
of the investment climate in indebted developing countries by
improving the balance of payments and reducing the debt overhang.
In this way, Norway will help to improve the framework conditions
for private sector development in indebted countries.
In order to ensure private sector development as
a result of economic reform programmes, it is important that they
are more explicitly focused on establishing favourable framework
conditions for private sector development. In a number of cases,
the programmes have focused too much on stabilization, resulting in
too rapid liberalization of imports. This has often failed to
enable local enterprises to adjust gradually to new framework
conditions. The sequencing and timing of economic reforms may
therefore be of decisive importance for the potential for private
sector development in many countries. At the same time, it is
important to be aware that economic reforms may also have
considerable regional effects in the area of trade.
Such issues must therefore be followed up in
discussions of individual countries’ Policy Framework Papers in the
World Bank and the IMF (PFP) and country strategies in the Bank’s
board and, on a more general level, in fora such as the World
Bank’s Special Programme for Africa (SPA), a donor forum for
economic reform programmes in African countries. In its continued
support for the implementation of economic reform programmes in
developing countries, Norway will assist in safeguarding and
reinforcing the focus of these programmes on favourable framework
conditions for private sector development.
3.2.5 Improving institutional and physical infrastructure and
good governance
At the institutional level, development
cooperation may help to promote good governance and support
institutional reforms and capacity building in areas important for
private sector development.
In this connection, an important role is played
by measures that promote good governance, a well functioning legal
system, necessary transparency in decisions and transactions and
reduced corruption. Well functioning industrial and labour
organizations form a significant part of a country’s institutional
infrastructure. In this connection, experience from Norway should
be put to good use. Norwegian industrial and labour organizations
are a valuable resource base for strengthening corresponding
organizations in developing countries.
In Norwegian development cooperation there has
traditionally been a strong focus on “physical” infrastructure and
less focus on the institutional framework that must be in place
around infrastructure investments for them to be able to contribute
to private sector development. Norwegian support for infrastructure
development should therefore focus more on the essential
institutional framework around the physical infrastructure
investments, such as the country’s sectoral policy , payment
systems for infrastructure services, maintenance systems, etc.
However, development assistance still has a role in the financing
of necessary physical infrastructure investments.
In countries where poorly functioning capital
markets constitute a considerable bottleneck, Norway will support
measures and programmes for reforms within the financial sector.
Here the World Bank plays a very important role. A significant
element of this involves viewing support to micro-finance
institutions as part of more coherent efforts to strengthen a
country’s financial sector for the benefit of small and
medium-sized enterprises.
In the continued follow-up, it will be important
for Norway to give increased priority to measures for improving the
institutional infrastructure of Norway’s partner countries,
including a well functioning financial sector and industrial and
labour organizations.
3.2.6 Strengthening and focusing efforts at the micro
level
The selection of activities and programmes at
the micro level must be based on surveys of enter-
prises and potential investors to identify the
main barriers to increased activity from their viewpoint. Such
surveys are often carried out by local industrial and trade
organizations or by institutions within the UN system and the World
Bank. The main points from such surveys must be included in the
country-specific analyses that are to form the basis of the
Norwegian private sector development activities in individual
countries.
On the basis of such analyses of the most
important barriers for private sector development, several types of
activity are possible at the micro level. It will often not be
necessary or desirable to establish separate Norwegian programmes,
but more appropriate to support existing national programmes or
measures under the auspices of other donors and multilateral
institutions. The main emphasis shall be placed on what is most
effective and not on making Norwegian efforts as visible as
possible.
Support for small and medium-sized enterprises
often has a favourable developmental effect. On the basis of
current measures and “best practices”, the ground shall therefore
be prepared for broader and more effective support in this area.
Appropriate priority areas are support for the transfer of
technology, training and competence building, financing, and
supervision, for example, in relation to marketing and export
training. In this area, a distinction is often made between
‘financial’ and ‘non-financial’ instruments. International
experience shows that the lack of necessary competence and
vocational training to represent serious constraints for private
sector development. These are issues that will be emphasized in the
educational focus that is planned. Insufficient knowledge at
enterprise level of different aspects of business operations is a
major limitation for private sector development in poor African
countries. Efforts in such areas must therefore be reinforced. It
is often a risk that too much attention is given to financial
instruments, while there is often a lack of satisfactory measures
in other areas.
However, access to adequate and appropriate
financing is also necessary for market entry or extension of
activities. Examples of financing mechanisms are microfinance, risk
capital, loan schemes and guarantee schemes. Microfinance schemes
have proved successful in many connections, but the impact on
private sector development varies considerably. Such schemes must
be viewed as part of the broad support given to small and
medium-sized enterprises and as a stage in the development of the
financial sector to cover such needs as well. This type of scheme
must also make use of the considerable experience that has so far
been gained in this area and which is, for example, exchanged
within the framework of the CGAP (Consultative Group to Assist the
Poorest). Support for local investment funds (venture capital
funds), where financing is also contributed by others, is given
high priority by NORFUND. The introduction of an untied loan scheme
is among the measures that will be given immediate consideration as
a follow-up of the strategy.
The use of guarantees to reduce risk is an
important supplement to loan schemes, and may in some cases serve
as a replacement for public loan schemes. Well functioning
guarantee schemes will enable the securing of capital access for
projects many times greater than the need for allocations. The use
of guarantees – within given risk limits – is therefore probably a
cost-effective instrument for stimulating trade with and
investments in developing countries. A review is to be made of
investment support schemes. In this connection, an assessment will
be made of how the guarantee scheme for export to and investments
in developing countries of the Norwegian Guarantee Institute for
Export Credits (GIEK) should be developed in order to function as
the most appropriate instrument.
Norwegian industry produces a number of goods of
interest to the developing countries. These consist of both
finished goods and material inputs for further processing. Further
development of trade between Norway and the developing countries is
desirable for the broadening of economic relations. Trade between
countries normally results in increased insight for both countries
into the potential and limitations of the trading partner. This
sometimes creates the basis for long-term economic relations, for
example investments. Furthermore, trade and potential future
investments in developing countries normally result in the transfer
of technology and expertise, which thereby gives rise to new growth
opportunities in these countries.
Since the introduction of the “Helsinki Package”
of 1992, the scope and content of tied loan financing have changed
considerably. In international terms, the proportion of this type
of financing schemes has been greatly reduced. The schemes have
gradually been adjusted in the direction of closer compliance with
the main priorities of Norwegian development cooperation policy,
for example the focus on poverty. In the light of this, an
evaluation is planned of Norwegian mixed credit arrangements. The
evaluation will review a number of aspects of the effectiveness of
this form of assistance, at both micro and macro levels. An
investigation will also be made of whether the use of export
support schemes results in a gradual increase in long-term
investments by Norwegian enterprises in poor developing countries.
A main concern will be the assessment of the developmental effect
in relation to the poorest countries.
There is often a need for marketing and export
training. It will therefore be appropriate to support schemes that
promote sales and exports by enterprises in developing countries in
general and import to Norway in particular. Such support for
increased exports may include production assistance, product
development, measures to improve quality, etc. Norwegian expertise
may be particularly relevant here, since our experience as a small
player in a global market has many features in common with the
current situation of developing countries. In this connection, it
will be appropriate to make use of the Norwegian Trade Council as a
national resource centre for exports and internationalization.
Norwegian development assistance via country
programmes and regional allocations has only to a limited extent
been explicitly directed towards private sector development in
Norway’s partner countries. At the same time, commercial and
industrial schemes have essentially been subject to ties with
Norway. Local private sector development measures with no Norwegian
ties have therefore been difficult for Norway to support. It may
therefore be necessary to reserve funds within regional allocations
for private sector development purposes. The mechanisms selected as
channels for Norwegian assistance in these areas may be under the
auspices of national institutions or other donors, including
multilateral institutions, but will primarily consist of flexible
arrangements that may be used to finance measures that would
otherwise easily fall between two stools.
Norwegian development assistance at the micro
level for private sector development must reflect the continued
domination by the agricultural sector of the production structure
in a number of poor developing countries. Partly owing to the
desire for improved standards of living for the poorest,
development and increased production in the agricultural sector
will be important. In order to be competitive at the international
market, the agricultural products must be produced in compliance
with international environmental requirements. Increasing demands
are placed on environmental factors at all stages of the production
process. An attempt will therefore be made to strengthen the
agricultural sector in partner countries within both primary
production and further processing so as to meet these new
challenges. In this connection, an assessment should be made of how
agriculturally based private sector development can be
strengthened.
3.2.7 Promoting investments in developing countries
The developing countries attach high priority to
attracting increased investments from Nordic countries, and foreign
investments play an important role in the generation of incomes and
jobs. The most important factor for attracting investments is a
generally favourable investment climate in the country. It may also
be necessary to adopt investment stimulating measures both in
recipient countries and in investor countries. The strategy’s
emphasis on improving the framework conditions for commercial
activities in the developing countries will be a positive move in
this connection. More direct support for investment promotion
measures in our partner countries will also be given consideration.
Through NORAD’s private sector schemes and the establishment of
NORFUND, Norway has a number of mechanisms aimed
at stimulating Norwegian enterprises to invest in developing
countries.
The strategy emphasizes the need for an
increased focus on investment promotion in developing countries. A
review will therefore be made of the different investment schemes.
The intention of the review will be to identify the most important
barriers to Norwegian investments in developing countries, suggest
improvements in current schemes and new measures to promote
Norwegian investments in developing countries. In this connection,
exchange of information and experience has been indicated as an
area where a strengthened focus is needed. Long-term developmental
effects in the developing countries will be a key criterion for
assessing new measures. At the same time, the review will prepare
the ground for better coordination of the efforts of the different
institutions in this area. Norwegian commerce and industry will be
involved in this work. A number of Norwegian institutions outside
the development cooperation authorities, including the Norwegian
Trade Council, can play a role in the task of providing Norwegian
enterprises with information on the business and investment
potential in the developing countries.
There is also room for increased support via
multilateral institutions. Plans in this area include the
strengthening of cooperation with the IFC and the private sector
initiatives of the regional development banks. In connection with
the development aid budget for 1999, it has been proposed thaT
Norway shall become a member of the IDB’s institution for this
purpose, the Inter-American Investment Corporation (IIC).
As reflected in Proposition No. 1 to the
Storting (1998–99), NORFUND plays a major role in the work of
promoting Norwegian investments in developing countries. A gradual
strengthening of NORFUND’s capital base therefore represents an
important part of the strategy’s focus on investment-related
measures. As in the case of other countries’ funds, e.g. the
Commonwealth Development Fund, the long-term objective will be
untying of NORFUND’s activities as well. However, it is important
to note that, since most other OECD member countries already have
their own funds for this purpose and NORFUND is small compared with
corresponding funds, NORFUND’s strength will initially lie in
mobilizing Norwegian investors. It has moreover been registered
that a considerable part of NORFUND’s resources (46 per cent on
31.12.98) are in reality already untied via loans to local
financing institutions. It should be noted that NORFUND’s financial
participation and representation on the boards of such local
investment funds may provide Norwegian enterprises with new
partners and investment opportunities in these countries.
3.3 Increased use of local and
regional procurement
Goods and services from developing countries are
still only used to a limited extent as inputs in development
projects. This is often because the developing countries do not
produce the goods and services that are in demand, but the donors’
tying of development assistance is also an important reason why
developing countries are losing in the aid market. This is a major
argument for the untying of official development assistance..
Increased local and regional procurement will
constitute a valuable measure in the promotion of private sector
development in developing countries, a fact which was strongly
emphasized and required to be followed up in connection with the
Storting’s deliberations concerning Report No. 19 (1995–96) to the
Storting, cf. Recommendation S No. 229 (1995–96), spring 1996. It
is an aim of the strategy to follow this up and thereby promote
South–South trade. As regards bilateral assistance, with the
exception of tied schemes, a gradual transfer of the responsibility
for procurement to the recipient countries has in practice
eliminated direct procurement from NORAD. At the same time, it is
clear that efforts must be made to achieve greater openness. As far
as the support via NGOs is concerned, the organizations themselves
are responsible for procurement. In this connection, the emergency
preparedness system NOREPS should be mentioned which is based on
cooperation between Norwegian authorities, commerce and industry
and NGOs on international emergency relief and humanitarian
assistance. The scheme is under review and, in this connection, an
assessment is made of how the potential for increased local and
regional procurement of input may be better exploited.
Procurement of goods and services financed
through the United Nations and the multilateral financing
institutions is carried out in compliance with the regulations of
these institutions, whereby procurement is generally carried out
under the auspices of the recipient country. However, the situation
in this area is not particularly well documented and there is a
need for clarification. In this connection, a survey will be made
of the procurement practices of multilateral institutions and of
NGOs that receive Norwegian support. It is also necessary to
establish the proportion of total Norwegian development assistance
that is currently de facto handled by the authorities of the
recipient countries, the type of regulations that underlie the
recipient countries’ procurement practices and what may be done to
strengthen the potential for increased local and regional
procurement.
In this area, much has been achieved by placing
the responsibility for procurements in the recipient country. The
fact that a significant share of procurements is handled outside
the recipient countries arises from a number of factors. One reason
is that, as long as other donors continue to practice a
considerable degree of tying, recipient countries have difficulties
relating to Norway in a different way than to other donors. We must
therefore make more conscious efforts on this issue vis-à-vis the
authorities of the recipient countries. Of vital importance in this
connection is the OECD’s work on untying all development assistance
to the least developed countries, where procurement policy and
training/consciousness raising are among the issues addressed.
These issues will also be followed up on the bilateral side.
Another factor is the need for a commercial and industrial sector
more capable of producing goods and services of a competitive
quality and at competitive prices. The general approach of the
strategy is to work towards the realization of this in the longer
term.
3.4 Use of Norwegian resources and
Norwegian commerce and industry
The measures proposed in this strategy represent
major challenges for Norwegian commerce and industry. In the
future, private sector development in the developing countries will
be a more prominent area of Norwegian development cooperation. At
the same time, it is proposed in the strategy that considerable
changes be made in the application of instruments affecting schemes
used by parts of Norwegian commerce and industry. The emphasis on
tied schemes associated with the export of goods and services is
now being reduced, while the emphasis is increased on schemes that
stimulate investments in developing countries.
In the work on developing country-specific
private sector development programmes, Norwegian commerce and
industry can contribute expertise and experience that will help in
identifying bottlenecks and concrete obstacles to private sector
development. Norwegian companies will also be able to provide
insights gained from their experience of internationalization and
export orientation. Within the framework of this work, the
recipient countries’ authorities and private sectors will be able
to use the help of Norwegian commerce and industry and other
relevant institutions in meeting challenges within private sector
development. The basis for this is that Norwegian commerce and
industry as well as Norwegian institutions possess relevant private
sector competence of interest to the authorities and commerce and
industry of the developing countries. In this connection, a survey
should be made of Norwegian experience within private sector
development that may be directly relevant for private sector
development in developing countries.
It is important to stress the increased
potential for Norwegian commerce and industry that will result from
the increased general emphasis on the private sector in the
developing countries. It is not unreasonable to forecast an
increase in the volume of Norwegian commercial involvement in the
developing countries during the years to come. However, the
combination of activities will be different, and will involve
different enterprises and different parts of Norwegian commerce and
industry than is the case today. Gradual untying by other donor
countries will also increase the potential to compete for other
countries’ development assistance credits. We acknowledge that this
cooperation will have to take place within long-term and
predictable frameworks, and the strategy provides a basis for
establishing such frameworks. However, the driving force behind the
involvement of commerce and industry must be straightforward
commercial motives, and not access to development assistance
funds.
With a view to developing a partnership with
Norwegian commerce and industry and establishing arenas for
cooperation, the development cooperation authorities are open to
input and advice from commerce and industry in devising strategies
for future Norwegian assistance. Consultation mechanisms will be
established for involving commerce and industry and for regular
exchange of information. In this connection, activities in pilot
countries are planned to provide opportunities for trying out
different models for cooperation. At the same time, involvement by
commerce and industry entails a commitment to show a responsible
attitude and to apply the same ethical and commercial principles
and view of human rights as at home. In this way, Norwegian
enterprises can positively influence developments in the developing
countries through practical work in local enterprises. The
checklist for enterprises planning international activities issued
by the Confederation of Norwegian Business and Industry in November
1997 is a useful tool for enterprises facing the challenges
associated with human rights in developing countries.
Assistance for stimulating trade with poor
countries
In order to strengthen the trade-related
technical assistance to the poorest countries, six multilateral
institutions, the WTO, the ITC, UNCTAD, the UNDP, the IMF and the
World Bank have established the so-called “Integrated framework”
for trade-related technical assistance to LDCs. The purpose of the
integrated framework is to coordinate the six institutions’
measures for increasing LDC trade. Via this framework, the poorest
countries will be given individual assistance to enhance their
trade opportunities, to respond to market developments and to
integrate in the multilateral trade system. The integrated
technical assistance programme for Africa is part of this
framework. Within this programme, Norway has supported
trade-related measures in Uganda and Burkina Faso. The measures in
these countries include assistance at government level to implement
WTO agreements, and export promotion measures at enterprise
level.
Support for private sector development in Tanzania – room
for a more integrated approach?
In recent years, the Norwegian bilateral aid
programme for Tanzania has supported a number of projects that have
directly and indirectly fostered private sector development in the
country. However, these measures have not been developed within the
framework of an integrated program.
The majority of such measures have been financed
via NORAD’s private sector schemes. This applies to a number of
enterprises in Tanzania with Norwegian ownership interests, which
have benefited from various credit and grant schemes. NORAD has
also supported the project “Computerisation of Trade Finance
Operations” at the National Bank of Commerce. The Norwegian support
for PRIDE Tanzania has directly helped a large number of
enterprises in the informal sector, while a SADC project has
supported quality improvements in a number of private enterprises
in Tanzania. Furthermore, NORFUND has become share-holder of the
investment fund, Fedha Fund Limited.
In addition to this, several Norwegian-financed
measures within the state-to-state cooperation have helped to
improve the framework conditions for private sector development.
These include the support for maritime safety and development of
the petroleum sector. Rural development programmes have also played
a part in improving framework conditions for private sector
development. Norway has also supported Tanzania’s investment centre
which is working to increase investments in the country.
Considerable funds have also been given as import support to
Tanzania and this was a particularly important
form of development assistance up to the beginning of the 1990s,
since there was a considerable shortage of foreign currency in the
country. The support to the Regional Enterprise Development
Institute was given to promote better services within microfinance,
and may therefore improve the framework conditions for this
subsector. Support for coordination, for railway services and for
training in forestry have also helped to improve the framework
conditions for private sector development.
As illustrated above, the Norwegian aid
programme in Tanzania has supported a number of projects and
activities of great relevance for private sector development.
However, the measures have been characterized by considerable
diversity, they have not been chosen on the basis of a clear
private sector development perspective and Norwegian commercial
interests have influenced the priorities. The present strategy will
give NORAD and the embassy the opportunity to focus efforts for
private sector development on areas prioritized on the basis of a
country-specific analysis and which give the best possible
results.
Regional cooperation on quality: Increased trade and
strengthened competitiveness
Regional projects have traditionally consisted
of development and rehabilitation of infrastructure such as energy,
telecommunications and transport. The “SADC Training Programme on
Quality Management and Assurance” stands out as being a regional
project directed towards trade and industry.
The project aims to strengthen competitiveness
while promoting trade and export for countries in the region,
by
- increasing general awareness concerning quality management and
the setting up of quality systems
- building up local resources so that competence can be
maintained and further developed by involving national standards
associations, and increasing the competence of key personnel.
An evaluation showed that the following positive
results have been achieved by a majority of the enterprises in the
project:
- Increased understanding and awareness of the importance of
quality and quality management
- The established quality systems function in the enterprises and
there has been an improvement in.communication and cooperation
within the enterprises
- Considerable reduction in production errors, resulting in
increased productivity
- A number of individuals have been given expertise in quality
management
Economic results are underlined by many
enterprises. Ten per cent of the approximately 100 enterprises have
received ISO 9001/9002 certification for their quality systems.
This confirms that the quality systems that have been developed and
implemented are of international standard. In the case of many of
the enterprises, this has ensured access to new markets, both
regional and international, increased their general competitiveness
and attracted foreign investors. After completion of the project,
enterprises have continued to purchase such services on a
commercial basis.
The contribution of the Norwegian debt relief strategy to
private sector development in developing countries
Many developing countries are struggling with a
considerable debt burden that hinders economic development and
poverty reduction. Debt service binds up resources that might
otherwise be used for development purposes and for improving
framework conditions for private sector development. A country’s
debt burden often prevents investments and private sector
development from taking place, since investors regard the
investment climate as insecure if the authorities have difficulties
servicing the country’s debt. The Norwegian debt relief strategy
helps to reduce the debt problems of the developing countries by
writing off developing country debt to Norway, by making financial
contributions to international debt relief operations and by
working to improve the international debt relief mechanisms. By
means of these measures, the implementation of the debt relief
strategy helps to improve the investment climate and the general
conditions for private sector development in the developing
countries. (See also the brochure Towards the year 2000 and beyond:
the Norwegian debt relief strategy issued by the Norwegian Ministry
of Foreign Affairs)
More comprehensive and coordinated efforts in the energy
sector through ESMAP
The “Energy Sector Management Program” (ESMAP)
of the UNDP and the World Bank was established in 1983 to assist
the developing countries in carrying out feasibility studies for
high-priority investment projects in the energy sector. Here, as in
other sectors, it has become increasingly apparent that a lack of
well functioning national institutions in the sector, rational
sectoral policy and adequate public administration capacity reduces
the effect of individual investments in physical infrastructure.
ESMAP has an important role in strengthening the competence and
capacity of recipient countries to utilize energy and new
technology effectively by providing them with the necessary
financial resources and expertise. ESMAP also plays an important
role in the development of policy and overall plans for the energy
sector. Initiatives such as ESMAP help to strengthen the synergy
between bilateral and multilateral activities, since both parties
participate in the programme.
Business linkages in Zimbabwe
Through a project for small and medium-sized
enterprises in Zimbabwe, NORAD has supported the efforts of the
Confederation of Zimbabwe Industries to establish commercial ties
between small and large producers (“business linkages”). In
Zimbabwe, economic reforms have given rise to increased
competition, which has resulted in a wish by previously vertically
integrated companies to outsource activities outside their core
business areas. Hotels outsource their laundry activities, forestry
companies outsource small-scale harvesting , etc. This has created
major opportunities for small and medium-sized enterprises and
entrepreneurs, which have low fixed costs, are more flexible and
often have more efficient operations. However, these enterprises
meet many new challenges in the initial phase, and face
requirements making it difficult for them to succeed. With limited
technical assistance, many of them can be helped to succeed, among
other ways through ‘buyer-mentoring’ and/or through the involvement
of local finance institutions. This project places an emphasis on
promoting commercial connections based on ‘win-win’ situations and
on developing commercial and sustainable relations. Manicaland
Business Linkages Project (MBLP) is a subproject run by the local
branch of the Confederation of Zimbabwe Industries, which over the
last two years has resulted in the establishment of 139 new
companies representing over 1000 new jobs in the Mutare area. Work
is now under way to develop similar projects in other regions of
Zimbabwe.
The microfinance institution PRIDE in Tanzania
Norway supports many microfinance institutions,
among them PRIDE (Promotion of Rural Initiatives and Development
Enterprises) in Tanzania. The purpose of PRIDE is to create jobs
and incomes in the informal sector by giving loans to individuals
and small enterprises that do not have access to traditional
finance institutions, generally due to lack of collateral. The
loans are relatively short-term and the interest rate is roughly
the same as the market rate. At the end of August 1998, PRIDE had
22 branches over the whole of Tanzania and had provided more than
50 000 loans to commercial projects. Approximately 70 per cent of
the borrowers are women, and the rate of repayment has been 100 per
cent throughout the project’s lifetime. The PRIDE concept has many
characteristics in common with
Grameen Bank in Bangladesh. In spite of the high
repayment percentage, it is a challenge to make the activity
sustainable over time and independent on aid transfers to subsidize
administrative costs. Moreover, it is necessary to consider the
real and long-term effects on private sector development that can
be attained through such programmes. Such assessments must be made
in a broader perspective and microfinance schemes must be viewed in
relation to other measures of importance to the informal sector and
to small and medium-sized enterprises.
Joint venture for rose production in Uganda
A NORAD-supported joint venture in Uganda is an
example of a successful business cooperation between Norwegian and
African investors that has had positive indirect effects. With the
support of NORAD, a Norwegian chain of flower shops has in
cooperation with a local investor invested in a farm in Uganda for
production of roses for the Norwegian market. The support from
NORAD has been given in the form of a loan, support for basic
investments, training support and advisory assistance. The project
was started in 1995, production started in December 1996, and as
early as 1998, the company began making a profit. The production
has created 140 jobs, of which 85 per cent are for women, in an
area with unemployment. The activity has not been at the expense of
food production and has resulted in a more effective utilization of
the agricultural land in the area. The project has contributed to
the establishment of a private school and a health centre. The
support from NORAD has also resulted in electric power lines to the
district, roads have been built, and considerable economic activity
has been generated in a poor area that was previously characterized
by unemployment. The company plans an extension, which will create
more jobs. However, before finally assessing the developmental
effect of such a project, it is necessary to consider whether
operations will continue to be profitable without the provision of
further subsidized aid funding, and whether the assistance has been
applied in a socially profitable way. However, the project
illustrates the opportunities that lie in the developing countries
given an effective and profitable utilization of agricultural areas
for purposes other than food production. In this connection, Uganda
is a good example of a country with great underexploited
agricultural potential.
Joint venture in Sri Lanka with positive indirect
effects
A NORAD-supported joint venture in Sri Lanka
shows that projects based on Norwegian expertise supplemented with
technical advice can be beneficial for commercial interests in both
countries. The project manufactures furniture for the local and
regional market. The design is inspired by Norwegian design and
experience. The project has provided employment opportunities for
women, reduced local environmental degradation and resulted in a
number of positive indirect effects. The project was started as a
joint venture between a local company and three Norwegian partners.
The Norwegian Institute of Technology (TI) has assisted the project
in project development and training since the start of the project.
Since the cooperation started, production has tripled at the same
time as the staff has doubled to a total of 60 employees. Other
indirect effects are that the forestry workers are now better paid
because the rubber trees that are used in the furniture production
have increased in value. The company’s activities have also created
a basis for approximately 20 jobs at other suppliers and, with
NORAD’s help, improvements have been made in the road standard
connecting the area together. Women in Sri Lanka have traditionally
found work in the public sector. The obstacles to other forms of
employment are both cultural and practical. This project has
demonstrated that women have an aptitude for precision work that is
especially valuable in furniture production. Inadequate transport
between home and work was also a problem, but the employees of the
Norwegian company helped out by collecting bicycles in Norway,
which the employees of the company in Sri Lanka now use to travel
to and from work.
Opportunities for Norwegian commerce and industry
The new strategy involves many new opportunities
for Norwegian commerce and industry, which can be summed up as
follows:
The general conditions for commercial activities in
developing countries will be improved:
- Private sector development in developing countries is given
higher priority in Norwegian development cooperation.
- Private sector development programmes will reduce the main
barriers against private sector development in Norwegian partner
countries.
Active use will be made of the expertise of Norwegian
commerce and industry:
- Commerce and industry will be involved in the prepara tion of
private sector development programmes in selected partner
countries.
- An increased emphasis on infrastructure and on institutional
aspects decisive for the success of infrastructure investments.
These are areas where Norway has expertise.
- Focus on support for reforms in the financial sector where it
is possible to draw on Norwegian expertise.
- Development of industrial and labour institutions, where it is
particularly appropriate to draw on Norwegian co-operation
models.
Schemes aimed directly at Norwegian commerce and
industry:
- A review will identify the most important barriers to Norwegian
investments in developing countries and propose ways of stimulating
investments in these countries..
- Maintenance and extension of current investment support schemes
is planned
- NORFUND’s capital base is to be strengthened.
- NORFUND’s investments and participation on the boards of local
capital funds provide Norwegian commerce and industry with contacts
and increased investment opportunities in developing
countries.
- The guarantee scheme for export to and investment in developing
countries of the Norwegian Guarantee Institute for Export Credits
will be continued, and an extension of the framework will be
considered.
Fora for cooperation and information will be developed:
Fora concerning private sector development in develop-ing countries
will be established between the development cooperation
administration and Norwegian commerce and industry on:
- Policy issues and general information activities
- Development of private sector development programmes in
individual countries.
4
. Implementation of the strategy
The strategy implies that the approach taken
within Norwegian development cooperation to promote private sector
development in developing countries is changed in the direction of
more strategic efforts integrated with other development
cooperation activities. Efforts through various channels must be
supported to this effect, and the traditional distinctions between
bilateral and multilateral development work must be reduced. This
enables the achievement of the greatest possible synergy between
efforts made via different channels. In implementing the strategy,
emphasis will be placed on close cooperation with other donors and
on the wish to provide opportunities for increased donor
coordination.
The follow-up can be divided into two main
phases:
- short-term and immediate follow-up; and
- long-term follow-up.
4.1 Immediate follow-up
The immediate follow-up will concentrate on:
· Work on the budget for 2000, particularly on
instruments and changes in the layout of the budget
In the current budget layout, the instruments
for private sector development are concentrated in chapter 0157 and
the budget items referred to as commercial and industrial
cooperation. These include tied schemes, which have functioned as a
financing mechanism for projects within infrastructure development
and within the social sectors, and for schemes for institutional
cooperation and transfer of Norwegian expertise. The change of
emphasis from export support schemes to a greater focus on
investment schemes and a more integrated approach has resulted in a
need for changes in the layout of the development aid budget. The
Ministry will therefore in cooperation with NORAD initiate a
process to clarify these issues during the course of 1999.
·
Continuation of Norway’s active support in international fora
for untying of development assistance.
In close cooperation with like-minded countries,
the Government will continue its active efforts in international
fora such as the OECD and the World Bank to bring about further
untying of official development assistance.
·
Implementation of measures in pilot countries and continuous
assessment of the experience gained from these activities
During the course of 1999, the Norwegian
Ministry of Foreign Affairs and NORAD intend to establish a broad
dialogue with the authorities and with commerce and industry in
pilot countries, concerning how a pilot phase is to be implemented.
In this connection, efforts shall be made to foster cooperation
with other donors and to ensure that activities are in line with
the priorities and plans of the recipients.
·
Multilateral initiatives
Immediate consideration will be given to the
continuation and extension of measures that encourage more active
participation by the developing countries in the global economy.
This includes Norwegian support for an independent legal centre to
assist the poorest developing countries in trade disputes. During
1999, various initiatives will also be considered within the
framework of Norwegian support for the development banks’ private
sector initiatives and the IFC’s work on promoting project
·
Dialogue with Norwegian commerce and industry concerning their
role in the implementation of the strategy
The strategy places new demands on the
development cooperation authorities’ dialogue with and involvement
of Norwegian commerce and industry. A priority task will involve
establishing suitable fora for exchange of information and
cooperation in a way that supports the main approach adopted in the
strategy.
·
Evaluation of mixed credits
As part of a critical assessment of tied
schemes, an evaluation of mixed credits will be undertaken.
·
Studies and reviews on issues of particular importance
It is recommended in the strategy that increased
emphasis be given to efforts in some selected areas. Prior to
completion of this strategy document, it has been neither desirable
nor possible to make thorough investigations of the development of
measures and specific recommendations within these areas. It is
therefore necessary that the Norwegian Ministry of Foreign Affairs
takes the initiative in cooperation with the affected agencies to
undertake studies of the following areas:
- Review of investment support schemes with a view to establish
well targeted and strengthened range of instruments (see
3.2.7)
- Study of an untied credit scheme (see 3.2.6)
- Review of experience and frameworks for further support of
small and medium-sized enterprises, including the need for various
microfinance schemes (see 3.2.6)
- Regional cooperation and South–South trade (see 3.2.2)
- Measures to encourage increased local and regional procurement
(see 3.3).
The review of investment support schemes will be
led by the Norwegian Ministry of Foreign Affairs with participation
by the Ministry of Trade and Industry, NORAD, NORFUND, the
Norwegian
Guarantee Institute for Export Credits and
representatives from commerce and industry. In this connection,
consideration should be given to increasing the limits for
guarantees under the Norwegian Guarantee Institute for Export
Credits’ special scheme for export to and investments in developing
countries.
The implementation of the strategy will involve
a need for increased cooperation between the Norwegian Ministry of
Foreign Affairs and NORAD.
A working group will be appointed with
responsibility for coordinating the follow-up of the strategy
between the Norwegian Ministry of Foreign Affairs and NORAD, and
this working group will appoint subgroups as needed. An appropriate
area for a subgroup is trade-related assistance, an area where work
on the strategy has already created a need for increased
coordination. In the future, it would be appropriate to make use of
this group in connection with the preparations for UNCTAD X and in
further follow-up of the work on support of the poorest developing
countries within WTO.
4.2 Long-term follow-up
On the basis of the experience gained, among
other ways, in pilot countries, a foundation will be laid for
implementing the recommendations of the strategy within different
areas and agencies.
On the bilateral side, this will be carried out
by integrating private sector development aspects into the work on
aid strategies in priority countries. On this basis, private sector
development programmes can be developed in partner countries.
Based on the recommendations of the strategy,
the Norwegian Ministry of Foreign Affairs will draw up new
guidelines for private sector development measures in developing
countries, cf. current Guide-lines for private sector-related
schemes under the aid budget, dated 19.08.97. Based on this, NORAD
will review its instruments and schemes.
Work carried out through international
organizations provides excellent opportunities to increase the
influence of the strategy on private sector development in
developing countries beyond what can be achieved via bilateral
programmes. This can be done both by influencing their policies and
by providing support for the organizations’ projects and
programmes. A number of United Nations specialized agencies and
international financing institutions are engaged in issues of
direct relevance for the strategy, and policy and project work in
relation to these issues must be continued and developed along the
lines drawn up in relation to the strategy.
Cooperation on private sector development in
developing countries with international organizat-ions and with
other donors will contribute to increased donor coordination and
open up possibilities for channelling Norwegian support via other
donors. An example of work that will be continued is the
coordination within the CGAP, including the challenge of
communicating international experience to Norwegian NGOs and other
Norwegian participants in the work of promoting microfinance and
small-scale industries.
The strategy indicates a number of areas where
efforts must be reinforced. This particularly applies to the
stimulation of Norwegian investments in developing countries where
a broader foundation must be developed for Norwegian investments.
The review of schemes and measures in this area will lay the basis
for new measures and distribution of responsibilities.
In Proposition No.1 to the Storting (1998–99),
where further allocations are made to NORFUND, emphasis is also
placed on allowing the fund to increase its staff to ensure proper
management of the fund’s resources and active efforts vis-à-vis
Norwegian investors. In connection with the above-mentioned review
of investment schemes, we will return to the issue of further
assessment of the role to be played by the fund in the
implementation of the strategy.
4.3 Administrative consequences for
the Norwegian Ministry of Foreign Affairs
The approach outlined in the strategy will
require increased competence and capacity within this area in the
aid administration both at home and at the embassies. Much can be
achieved through the best possible utilization of current personnel
resources, reinforced by an active and prudent use of external
competence. Further needs must be assessed continuously as the
strategy is put into operation. The Norwegian Ministry of Foreign
Affairs must have the necessary competence at the strategic level
to ensure follow-up of the full breadth of the development
cooperation strategy and to have the capacity to follow up and
safeguard the interests of the poorest countries in international
negotiations. The strategy and its approach also require the
necessary capacity to conduct an active and targeted dialogue with
commerce and industry concerning its role in the implementation of
the strategy.
On the multilateral side, the Department for
Global Issues and the Trade Policy Department will share the
responsibility for implementing the strategy.
It is important here to ensure the necessary
competence on private sector development issues for use within the
multilateral system, both in connection with negotiations
concerning the international frame-work and in relation to the
technical and financial cooperation of these institutions. This
necessitates a review of Norwegian policy and support towards
multilaterals with a view to ensuring the best possible compliance
with the recommendations of the strategy. It will moreover be
especially important to take into consideration the strategy’s
approach in relation to international negotiations within
multi-lateral organizations and to ensure better coordination of
Norway’s conduct in different connections. This particularly
applies in connection with negotiations concerning replenishments
and capital increases in the World Bank and the regional
development banks and activities within the sphere of
responsi-bility of the Bilateral Affairs Department, which attends
meetings in consultative groups (CG meet-ings), the World Banks
Special Programme for Africa (SPA) and country programme
negotiations.
4.4 Administrative consequences for
NORAD
A major element of the strategy is the
positioning of private sector development as an integral part of
Norway’s total development activity. An issue that must be
discussed is therefore whether the current models for organization
and planning create favourable conditions for such an approach, or
whether other models ought to be considered. NORAD should prepare
proposals for how best to respond to these considerations,
including organizational structure and the situation with regard to
staffing.
4.5 Administrative consequences for
the embassies
In the recipient countries where Norway wishes
to place greater emphasis on private sector development, this must
be discussed with the country’s authorities and private sector, and
be incorporated into the development cooperation plans. The
strategy does not automatically imply an increased emphasis on
private sector development in all country programmes, but is
intended rather to lay the basis for an integrated approach to all
our greater and lesser efforts.
This will result in an increased need for
competence and capacity in this area at the embassies in the form
of:
- resources and competence for dialogue with the authorities
concerning the identification of bottlenecks and needs in relation
the strengthening of private sector development in the individual
country
- capacity for the preparation of private sector development
programmes as integral parts of country programmes
In the case of pilot countries, the Norwegian
Ministry of Foreign Affairs and NORAD, in cooperation with the
affected embassies, will consider temporary staff reinforcements to
set the work in motion and assign responsibility for duties
concern-ing private sector development.
Coordination of support formicrofinance: CGAP
Microfinance has proved an effective instrument
in the fight against poverty. Poor population groups are given
better opportunities to involve themselves in income generating
activities. A large number of institutions are now engaged in
microfinance, and Norway supports various microfinance schemes both
via multilateral organizations and via bilateral channels,
including NGOs. However, the sharp increase that we have seen in
support for microfinance may give rise to the danger of an
uncritical flow of capital to microfinance institutions that have
neither the necessary capacity nor competence in this area. The
large number of different organizations that finance and operate
microfinance institutions and the challenges involved in making
this form of assistance as effective as possible have created a
need for coordinating fora. The Consultative Group to Assist the
Poorest (CGAP) was established in 1995 to strengthen and increase
the efficiency of microfinance as an instrument of international
development assistance. Today CGAP consists of 27 multilateral and
bilateral donors, and the World Bank holds the chairmanship. There
is broad agreement that the success of CGAP has been due to
improved donor coordination, dissemination of information, exchange
of experience and increased knowledge of microfinance. CGAP has
also created guide-lines for good microfinance programmes. As well
as improving coordination between donors, CGAP has helped to
improve internal coordination within donor countries since a number
of bodies are often involved in microfinance projects. Norway has
been inspired by CGAP to improve the exchange of information and to
carry out a review of the Norwegian microfinance portfolio,
including an assessment of how poverty-oriented and financially
sustainable the various schemes have been. CGAP is therefore a good
example of successful coordination that has improved the quality of
the donors’ efforts and has helped to bring about more
comprehensive and coordinated assistance.
5. Quality assurance, performance
reporting and evaluation
As in all areas of development cooperation,
private sector development must be subject to continuous quality
assurance, assessment of the extent to which the strategy has been
implemented and evaluation of whether objectives have been
achieved. The preparation of the strategy for private sector
development has clarified both the overall and the more immediate
objectives that must be followed up when evaluating the results of
such measures.
The results of implementing the strategy for
private sector development can only to a limited extent be assessed
on the basis of statistics concerning consumption or by aggregating
results from the project level. Priority must therefore be given to
systematizing assessments of the policy and the strategy by means
of active and regular reviews, evaluations, studies and research.
In the following, a brief description is given of criteria that
should be applied when assessing the achievement of objectives in
this area, and of the procedures that must be followed within
quality assurance, performance reporting and evaluation.
5.1 Assessment criteria for support
for private sector development
Support for private sector development is
defined in the strategy as support for measures that help to
strengthen profitable production, whether in primary industries,
service industries or manufacturing industries. The following
overall objectives for support for private sector development in
develop-ing countries are defined in the strategy, and are thereby
the main criteria to be applied in assessing the success of such
support:
- Strengthening of profitable production and activities in
developing countries
- Safeguarding and increasing jobs and incomes, particularly for
underprivileged groups (the poorest population groups in rural
areas, women)
- Ensuring that measures within the strategy comply with the
general principles for Norwegian development cooperation, including
the environment, women and human rights.
A number of selected areas are given priority in
the strategy (cf. chapter 3.1). These areas may serve as immediate
objectives when considering and/or evaluating measures and
performance:
- Reducing marginalization of the poorest countries
- Improving economic relations and trade between developing
countries
- Working to achieve more integrated support of private sector
development at country level based on surveys of the main obstacles
and prioritized needs.
- Ensuring better coherence and synergy between activities
carried out in different areas and via different channels
- Improving framework conditions for private sector development
in developing countries
- Promoting increased investments of both domestic and foreign
capital, including Norwegian capital
- Promoting trade with developing countries and stimulating their
exports
- Working to promote untying of development assistance
- Increasing local procurement within aid-financed projects
- Making active and targeted use of the Norwegian competence
base, including Norwegian commerce and industry.
5.2 Quality assurance
The Ministry is preparing procedures for quality
assurance of development assistance. This work is being carried out
in cooperation with NORAD.
By quality assurance of procedures: from
prioritizing of projects via planning, implementation, reporting,
reviewing and evaluation, indications will be made as to which
tasks in these procedures that need to be improved and altered in
order to ensure satisfactory performance and a high quality of
performance reporting. Reviews and evaluations will be implemented
in relation to a standard method for reporting. The basis for
reporting is to be established in the planning phase of the
individual projects. Development cooperation will be based on
previous experience. Improved performance reporting is a major
priority, and NORAD has established a special unit for this
purpose. An assessment of the experience gained will form the basis
for planning and implementation of projects. After careful
assessment, measurement parameters will be defined for use in later
reporting. The quality of the reviews and evaluations will be
decisive for quality assurance and evaluation of projects in the
future.
5.3 Evaluation
An important basis for future evaluation of
Norwegian support for private sector development has been laid
through the preparation of this strategy. Precise specification of
objectives and expected results is an important precondition for
later evaluation. The overall objectives and priorities set out in
the strategy will therefore serve as a basis for defining
objectives and expected results, and thereby for later evaluations.
Consideration of the needs associated with future evaluations is
also important when planning the different measures and schemes in
the implementation of the strategy.
Before implementing the various measures,
realistic descriptions of the current status should be made
available.
It may be appropriate to carry out evaluations
at several levels, e.g. at the strategy level (i.e. evalu-ation of
the results of the total Norwegian assistance based on the
strategy), at the organizational level (e.g. support via the WTO),
or at country level (e.g. programmes for Norwegian support to
private sector development in pilot countries).
It will also be appropriate to consider specific
private sector support schemes for inclusion in the new strategy.
Evaluation of these will normally attempt to answer questions about
performance, relevance, effectiveness, impact and
sustainability.
An evaluation at strategy level would be a
large-scale task that would have to be based primarily on reviews,
reports, etc. and on evaluations carried out by other
organizations. Over time one would also carry out separate
evaluations of individual measures included in the strategy. This
would allow systematic coverage of the most important elements of
the strategy during a period of three to four years.
Reviews and evaluations may also indicate areas
where there is a need for further knowledge and analysis. This may
involve both relatively brief studies of concrete issues and more
long-term research aimed at addressing relevant issues within a
broader context. The Norwegian Ministry of Foreign Affairs is, for
example, currently contributing funds to a research programme
entitled Globalisation and marginalisation: Multi- and
interdisciplinary research on development paths in the South. One
of a number of thematic aims within this programme is to acquire
more knowledge of economic policy and private sector development in
developing countries. In cooperation with the Research Council of
Norway, the Ministry will facilitate the publication of information
by this programme and by other programmes with the aim of drawing
on relevant researchers and research institutions when needed in
connection with further work on private sector development.
IT Bilateral Investment Treaty
CGAP Consultative Group to Assist the Poorest
DAC Development Assistance Committee (of OECD)
ESMAP Energy Sector and Management Assistance
Programme
FIAS Foreign Investment Advisory Services (of
IFC)
GIEK Norwegian Guarantee Institute for Export
Credits
GSP Generalised System of Preferences
IBRD International Bank for Reconstruction and
Development/World Bank
IDA International Development Association (of the
World Bank)
IDB Inter-American Development Bank
IFC International Finance Corporation (of the
World Bank)
IIC Inter-American Investment Corporation (of
IDB)
ILO International Labour Organisation
IMF International Monetary Fund
ITC International Trade Centre
KOMpakt The consultative body for human rights and
Norwegian economic involvement abroad
NORAD Norwegian Agency for Development
Cooperation
NOREPS Norwegian Emergency Preparedness System
NORFUND Norwegian Risk Capital Fund for Developing
Countries
OECD Organisation for Economic Co-operation and
Development
PRIDE Promotion of Rural Initiatives and
Development Enterprises
SADC Southern Africa Development Community
SPA Special Programme of Assistance for African
Countries
UNCTAD United Nations Conference on Trade and
Development
UNDP United Nations Development Programme
UNIDO United Nations Industrial Development
Organisation
WTO World Trade Organisation
This page was last May 3. 1999 updated by the
editors