Lancering ORIO

Toespraak | 12-03-2009

Gelegenheid:

Your Excellencies, ladies and gentlemen,

I’m glad to see you all here in Nootdorp. Thank you for coming. You were probably thinking that we chose Nootdorp because it’s cheaper than The Hague, and development cooperation is asked to economise. You are wrong! We chose this wonderful location because there was such a large turn-out for this meeting that we couldn’t find a room big enough to accommodate you all in the ministry.

I am delighted that you could free up time to attend the launch of ORIO, our new Development-related Infrastructure Facility. I am also delighted that our Minister for Foreign Trade Frank Heemskerk is participating. His presence here today underscores the importance this government attaches to an integrated approach to the issues of poverty and development. An approach in which the national and international business community plays a central part.

ORIO is an essential element in modernising Dutch development policy. As I see it, that policy should:
• focus on promoting sustainable economic growth and employment in developing countries; here I see a crucial nexus between the strength of our economy in green and blue areas, and the needs of developing countries.
• see private sector development as an essential component of our relationship with our partner countries – the private sector as the engine;
• use development aid to leverage investment under difficult circumstances of economic crisis in both developed and developing countries.

And as you know, ladies and gentlemen, circumstances are not easy at this moment.

[Impact of the financial crisis on developing countries]

We are launching ORIO precisely at the moment that the world is searching desperately for an answer to the worst economic crisis since the 1930s. Unlike previous crises, this one did not originate in the world’s poorest countries and emerging economies, but in its richest. Among its causes were the huge economic imbalance in the world, a lack of national and international oversight of rich countries and financial institutions, and a perverse culture in which, in 2008, bankers’ bonuses exceeded total ODA for Africa.

The impact of the crisis on the West and on emerging economies is fast becoming clear. In this situation, it is understandable that our attention will first turn to our own countries. But the poorest countries will be equally hard hit. We should not forget that. Shrinking international trade, new forms of protectionism, migrants sending fewer remittances, less foreign investment, and unstable development budgets: these will all seriously affect developing countries. I was in Mali last week, where I saw it happening already. We are now working on this problem in the G20, and raising the issue in the debate on a new financial architecture.

The World Bank has calculated that the crisis has already pushed 100 million people back below the poverty line. Most of these people live in developing countries. If the crisis continues for any length of time, the World Bank expects an extra 200 to 400 thousand children to die each year. That is an extremely bitter pill, given that many of these countries had made considerable progress in the past few years – through increasing trade and investment and effective development cooperation.

The longer the crisis lasts, the greater the impact on the poorest countries. We are already seeing Western banks, investment funds and institutional investors withdrawing much of their money from abroad to repair their balance sheets at home. Seen from their perspective, this makes good sense, but it is disastrous for many developing countries. Because it will be more difficult for companies and governments to borrow money on the international capital markets. Last Sunday, the World Bank announced that this alone will mean that developing countries will have between 270 and 700 billion dollars less to spend this year. Money that was to be invested in health care and education, for instance. Or in large infrastructure projects, like roads, bridges and ports. In some cases, these investments have been put on hold. In other cases, they have been scrapped. This is a worrying development: investment in infrastructure is vital, especially now. We only need to look at the support measures being implemented in many rich countries like our own to see the truth in that.

But we also know that many developing countries find it difficult to maintain investment in infrastructure. And that too gives cause for concern. So much, in fact, that the World Bank recently proposed that developed countries should pass on part of their incentive packages to poorer countries. Because investment in infrastructure is far more effective there. According to Justin Lin, the World Bank’s Chief Economist, you get ‘a bigger bang for the buck’ in these countries. I do not know whether this proposal will prove politically feasible in the present circumstances. But I do know that pro-poor infrastructure plays an important role in growth and the distribution of wealth.

A single road, a railway line, a port – they can make a world of difference to the quality of life of millions of people. But other forms of infrastructure have the same effect. Take communication systems, water purification installations, electricity supplies and irrigation.

Let me give you another example that I came across during my visit to Mali. I saw with my own eyes how irrigation can contribute to sustainable poverty reduction. The area covered by the Office du Niger irrigation scheme to the east of the capital, Bamako, looks a little like a typical Dutch landscape, but slightly warmer!
It is wet and as flat as a pancake, and you see farmers cycling alongside ditches that run in perfectly straight lines. A Dutch landscape in the middle of the Sahel. Perhaps that was the reason why, thirty years ago, the Netherlands was the only donor to see any future in this dilapidated irrigation system. But after thirty years of close cooperation between the Netherlands and Mali, the Office du Niger is, by African standards, a highly prosperous farming area, with production in the hands of independent farmers. Since 1978, they have seen their income increase sixfold, to a thousand dollars a year.

The Office du Niger is a good example of a development-related infrastructure project. And the positive effects of this project are felt not just in the immediate area. The whole of Mali benefits. Less rice needs to be imported, which is good for the balance of trade, the urban population has enough to eat, and farmers are gradually breaking out of the vicious circle of poverty. All of this achieved through effective water management.

Studies have shown that development-related infrastructure, that we are talking about this afternoon:
• reduces transaction costs and facilitates trade between and within countries;
• presents individuals, companies and governments with economic opportunities they would otherwise never have had;
• enhances human capital by improving access to schools and health centres, and
• last – but certainly not least in times of economic crisis – creates jobs.

Development-related infrastructure contributes to achieving the famous Millennium Development Goals. Indirectly, through economic growth, but also directly. Roads and reliable cross-river connections reduce the cost of getting products to market. They enable girls to attend school more often, provide access to medical care, and ensure more international transport and trade.

Given all these positive effects, it is hardly surprising that in the most recent edition of the World Development Report, the World Bank recommends investment in spatial connectivity as an important instrument to promote pro-poor growth we are looking for. A policy instrument with which governments can encourage inclusive growth. But it is also an instrument that needs to be embedded in other measures. Because, as Paul Collier puts it in his book The Bottom Billion, ‘Aid for infrastructure makes sense, but only if it is matched by a radical tightening of the enforcement of anti-corruption norms.’ I agree with him. That is why tougher measures against corruption are one of the core elements of my modernisation agenda.

These days the book ‘Dead Aid’ by the eloquent African author Dambisa Moyo is drawing much attention in the Dutch media. The book carries the subtitle ‘Why aid is not working and how there is another way for Africa’. For doctor Moyo that ‘other way’ is improved access to private capital and markets. In my view these are a crucial components, but I cannot help but notice that even Ghana and Kenya have recently been forced to postpone their sovereign bond offerings due to a lack of interest. In that light I think doctor Moyo is being overly optimistic about the current role of private capital in the development of Africa. Capital markets simply do not yet see the enormous potential of Africa, especially in this time of economic crisis. Development cooperation is now – I should say unfortunately so – the only reasonably stable income flow to least developed countries. That is not a good thing. And the modernisation of development cooperation IS in fact highly efficient and effective through public-private partnerships, stimulus for the local financial sector and supporting the health and education of African workers. We know private investments will only come with an educated and healthy workforce and with adequate infrastructure. We do have already many of these successful public private partnerships with companies and financial institutions, some of them are also here today.

The Dutch development cooperation world recognised the importance of public infrastructure for sustainable poverty reduction years ago. For many years we have worked with the business community to implement projects that were not bankable, or for which no other sources of funding were available. ORIO’s predecessor, the Development-related Export Transactions Programme, ORET for short, was launched in 1979. The programme was intended to help fund projects in sectors like education, medical care, port development, drinking water, waste disposal, environment, roads and public transport. A donation from the Dutch government enabled recipient countries to buy the capital goods, knowledge and skills needed for the projects in question from the business community. There have been many very successful ORET projects. That is something you should be proud of.

But the programme did not always have much effect on development. Sometimes the results were excellent. In the south of Tanzania, for instance, the electricity distribution network was improved and expanded thanks to ORET funding. Up to then, only five per cent of the population had access to electricity. Thanks to ORET this percentage is now much higher. Other good examples include the rehabilitation of hospitals in Ghana and Bosnia. These are projects that benefit the poor directly.

But evaluations showed that this was not always the case. And there were many projects that hardly seemed likely to reduce poverty. In fact, only half of the projects evaluated had a genuinely positive effect on poverty reduction. And only half of the projects met expectations as regards job creation. On the basis of these results, the evaluation recommended focusing more closely on the sustainability of the projects, in particular in terms of funding. Another recommendation was to concentrate on the demand side, a general rule for effective development cooperation.

That is why I took the responsibility to adjust the programme. I am convinced that with the new ORIO facility, the details of which we sent to parliament today, we have responded to the outcome of the ORET evaluations. In accordance with the Coalition Agreement, the facility is more relevant to small and medium-sized enterprises in both the Netherlands and developing countries. I see a great opportunity for Dutch business to use the strengths of our economy to contribute to the sustainability of both the international economy and the economies of developing countries.

Proposals submitted within the framework of the ORIO facility will be screened for their relevance to development, their contribution to economic development, their sustainability and the involvement of SMEs. Only the best proposals will be eligible for a grant. I think that is progress. And despite these very sensible criteria, the facility is neither too complicated nor too bureaucratic. The Agency for International Business and Cooperation, the agency I have chosen to implement ORIO, will be responsible for selecting projects for ORIO grants. The Agency will receive the support of an excellent independent advisory committee.

We are attempting to make ORIO projects more sustainable by including the entire process of infrastructure development in the financing. ORIO is not only about building a facility, or delivering goods. The design stage, social and environmental impact studies, and all the other steps needed to arrive at a feasible project proposal may now be funded through ORIO. Cofinancing of management and maintenance is also possible. With a view to sustainable exploitation, ORIO can be used to contribute to these costs for up to 10 years after completion of the project. That is development in practice.

As I have already pointed out, the facility will also focus on opportunities for SMEs. By operating in sectors where Dutch enterprises excel, we can ensure that the best possible use is made of their knowledge and skills. By telling companies at an early stage whether a project is eligible, we will give them more security. And by helping to fund the development costs, we will keep companies’ spending down. Demand from developing countries plays a central role. Ownership will be strengthened because their governments will act as both applicants for grants, and recipients. This will help us to achieve synergy in development efforts, to prevent fragmentation, and make real progress in developing the private sector in developing countries. I call that modernisation of development cooperation in practise.

The new ORIO facility is an essential element of this new approach to development cooperation. In working on the facility, we responded to the report issued by the Advisory Council on International Affairs on private sector development and poverty reduction. We looked carefully at the coherence and synergy between our private sector development programmes. They were simply not strong enough. By gradually focusing all our programmes on a limited number of countries, and by aligning the various programmes to our program countries, we have improved coherence between them. The new ORIO fits into this picture, because far more than in the past, it will dovetail with the programmes receiving sectoral support from our embassies. Recipient countries, in close consultation with the embassies, have chosen the sectors in which ORIO will operate.

ORIO is a good example of how we seek partners with whom we can work together to achieve the MDGs. As you know, the MDG’s are underfunded and might not be reached in time. The business community is one such partner, for instance in reconstruction work, also in post-conflict countries.

While I am on this subject, I should like to take the opportunity to announce my intention to organise a meeting later this year on economic reconstruction in fragile states. The Dutch business community will be invited to attend.

And on the same subject, a project has recently been launched under one of the Schokland agreements by The Hague Centre for Strategic Studies and Cordaid. One of the plans is to set up an interactive forum on-line in which the relevant ministries, NGOs and the business community can participate. I believe that initiatives like this one present good opportunities to use technological innovation to put cooperation into practice. We are actually working with the business community in Afghanistan on such an approach.

Ladies and gentlemen,

This brings me to the end of my speech. We have high expectations of ORIO. It presents excellent prospects, not only for the economic development of the country or region in which the infrastructure will be built. But also for the companies that carry out the projects. Like them, I have every confidence that the international business community, and most certainly Dutch business, will make the new facility a success. In that light, I have decided to raise the budget for 2009, despite the reduction in general ODA as a result of GDP reduction. As you know our development cooperation is set at 0.8% of GDP. If there is a reduction of GDP, the budget for development cooperation automatically follows.

Instead of the 140 million euros I originally committed, grants to a total of 180 million euros will be awarded in 2009. I took this decision because I feel we have to adjust our policy in times of economic crisis, especially towards developing countries. This type of cooperation can help developing countries in countercyclical investment programmes they cannot afford at times when the level playing field is quickly eroding. Because we can do it, and they can’t. It can also help our economies and stimulate comparative advantages of our green, blue and other sectors.

I believe that we have done our part. All I can do now is urge you to make full use of the opportunities presented by ORIO. Before I hand over to the Minister for Foreign Trade, I should like to especially thank Pieter Winsemius for agreeing to address you today. Thank you all once again for coming to Nootdorp. I look forward to working with you.

Thank you.