The role of companies in poverty alleviation (Engels)
Gelegenheid: 10th anniversary of PSOMLadies and gentlemen,
I am honoured to be here today to join in celebrating PSOM’s tenth anniversary. I am one of PSOM’s biggest fans. So I am happy that I can congratulate you in person on your achievements during your first ten years.
The words I would use to describe PSOM, the Emerging Markets Cooperation Programme, and all those involved in its work are: energetic, persistent and bold. Your boundless energy over the past ten years has generated many successes and brought about structural change. Your investments and innovative ideas have given private sector employment a major boost in several developing countries. Your persistence has been a crucial factor, because these are not the easiest areas to put plans into practice. But you were bold enough to cross borders and invest in countries where the risks were high.
Travelling around the world, I often see proof that PSOM is one of the most successful development programmes around. In Ethiopia and Kenya, for example, I spoke to Dutch horticulture entrepreneurs. Allmost every single company, in what is now a million dollar industry, started their activities with a PSOM grant! I have also seen great examples in Mozambique, Ghana, Indonesia and Vietnam.
In Vietnam I saw a factory being built to produce high-quality professional clothing, such as fire brigade uniforms. The aim was to train and employ 130 people. But it looks like 150 will get jobs. And the project has been given a CSR certification by the Fair Wear Foundation.
No doubt, you will hear more success stories like these today. You should be proud of what you have achieved. I sincerely hope you will continue making investments!
Terugkomend op OS beleid
PSOM projects like this are in line with my policy. As I have said, development cooperation is ‘our common concern’. And I want to bring it up to date. One important part of modernising development cooperation is forging alliances with business so we can attain the Millennium Development Goals.
Because it is impossible to combat poverty effectively without economic growth. And economic growth is impossible without the business community, because that is where growth is created. So we form partnerships with business, on the basis of the demand from developing countries. And for the private sector to flourish, of course, the fruits of economic growth must be distributed fairly.
This brings us to one of the pillars of my policy: growth and distribution. Everyone, especially the have-nots, should benefit from growth, savour it and acquire a taste for it. That is my responsibility as minister for Development Cooperation.
And you and I need to ensure that people living in poverty have the chance to find work and keep it. By giving them access to:
• financial services, such as microcredit;
• land, by letting them register their land rights;
• Western markets without tariff barriers; and
• the knowledge they need to increase agricultural production by deploying new methods and growing new crops.
The conditions, forms and working areas of development cooperation have changed radically in recent years. We are putting an end to the fragmentation of aid. For example, last week in Accra, we have agreed that donors will give half of their aid directly to the governments of developing countries, rather than as project support.
And we are making aid more predictable. Rich countries are letting developing countries know how much aid they can count on for a period of three to five years. This also helps countries to coordinate their policies better.
And developing countries are being given more of a say in the course of their own development. We should stop wasting money on projects that poor countries don’t want. This is one major lesson we have learned in recent years: let recipient countries help make the decisions!
Countries like China and India are experiencing very rapid growth, and have become major players in their own right on the world market. At the same time new problems are arising. Everyone is hit by rising food and oil prices, and the poorest countries hardest of all. On top of that, the financial crisis means that the private sector is neither able nor willing to take the big risks it used to with new investments, especially in developing countries.
Yet development cooperation needs the private sector! Because clearly, the business community has a crucial role to play in poverty reduction. Development cooperation means investing in the most difficult conditions. The public sector cannot manage this enormous task on its own. We need to support health care, education, legal systems, good governance and solid infrastructure – areas where private investment is not only possible, but necessary.
That is why I work with businesses in many different ways, here in the Netherlands and in developing countries. And I want to build on the wealth of experience that PSOM has acquired over the past ten years.
Modern development cooperation is “Our Common Concern” (as my policy note is entitled), it is about attaining the MDGs, exploring new markets and discovering opportunities for growth in underdeveloped markets. All the countries in the world, including poor countries, are taking part in globalisation. Poor countries too contribute to new technological developments; they too can profit from these developments.
Verantwoording en uitleg naar bedrijfsleven
Allow me to explain my approach and how modern development cooperation works. During my term in office as Minister for Development Cooperation I will spend a lot of money supporting private sector initiatives. In fact, more than any of my predecessors.
Over the next few years I intend to consult with the business community on a more regular basis, in a kind of ‘MDG business club’, about how we can work together to invest in developing countries.
Because we need more people to think and take action. People who have proven that investing in developing countries makes sense, and that companies and government can work together productively to bring the MDGs closer.
This ‘MDG business club’ should be different from the regular consultations that already take place between the development cooperation programme and regulated companies, for example in the framework of the Global Compact, the Confederation of Netherlands Industry and Employers, and the Dutch Trade Board. It should focus not on promoting companies’ interests, but on cooperating to attain the MDGs. Though of course all participants will pursue their own goals. I do understand that companies’ primary goals are profits and continuity.
The MDG business club should consist ideally of people from different sectors: multinationals as well as SMEs; agriculture, finance and Dutch export industry; CEOs and people who do hands-on work.
We have considerable experience by now with different forms of cooperation with business: partnerships, Schokland agreements and of course PSOM. So we know that there are plenty of employers who could make a useful contribution to a club like this.
The business club could meet a few times a year to brainstorm, share ideas and identify new forms of cooperation – forms of cooperation that can make investing in developing countries more attractive, particularly for commercial enterprises. And I will make it even more attractive – the MDG business club will soon be the club that companies want to belong to!
In the next few years, I want to build a long-term relationship with the business community by creating a good investment climate and improving it wherever necessary. This year I have set aside 485 million euros, 10% of my total ODA budget, to improve the investment climate. Add to that my spending on multilateral institutions like the World Bank and NGOs such as NOVIB, which are engaged in private sector development.
All together, that comes to about 750 million euros a year, around 15% of my budget. And my colleague Minister Verburg of Agriculture and I adding an extra 50 million euros to the 350 million I already spend on agriculture in developing countries. With food prices soaring, it is important to increase food supplies in developing countries.
We support farmers by funding new technologies, research, market access and financial services. We work with private actors, such as Rabobank, to increase access to financial services for many thousands of farmers in countries like Tanzania, Rwanda and Mozambique. The guarantee fund I finance with a contribution of one million euros facilitates 20 million euros in loans to farmers.
As I said: I spend a lot of money supporting entrepreneurs, like you, who have the courage to invest and thus fight poverty.
To build a productive partnership, we need to complement each other. I create the favourable conditions, and you develop and implement solutions that will first and foremost benefit the poor. Because we are still too far from attaining our goals!
Vernieuwing in de samenwerking
My policy of modern development cooperation also involves working with business in unconventional and innovative ways. Some special agreements were made recently at Schokland.
For instance, Achmea, SNS and Aegon and I set up the Health Insurance Fund to try and provide private insurance in Africa so that people are less vulnerable to illness and the loss of income that it often causes.
Sustainable trade initiatives have been developed too. I am working with civil society organisations and companies like Ahold, Nestlé, Unilever, Volker Wessels, the Royal BAM Group and the Dutch construction federation Bouwend Nederland to make the entire production chain of products like timber, cacoa and coffee sustainable.
As an indirect consequence, development investment taps a group of potential consumers. If the poor make higher profits by running successful businesses, they have more money to spend. It’s that simple. Economic growth in developing countries also stimulates international trade as a whole.
I am pleased to see that companies are becoming more and more aware of their role in society. Businesses are learning about Corporate Social Responsibility and its principles of People, Planet and Profit and are putting them into practice. For example the multinational Heineken reports on its contribution to attaining the Millennium Development Goals.
Because the MDGs are what it’s all about. In 2000, 189 countries agreed to radically reduce global poverty, disease and hunger by 2015. Their agreements were laid down in eight Millennium Development Goals. And these core objectives shape my work. I cannot stress enough how important it is for us to join forces in the battle against poverty and to achieve the Millennium Development Goals.
Link naar PSOM
The MDGs were formulated just two years after PSOM, the Emerging Markets Cooperation Programme, was established. But of course the idea of fighting poverty through concerted global action had been around for a long time. This has been PSOM’s approach all along: fighting global poverty by sharing the risks of investing in developing countries with the Dutch government, Dutch SMEs and local companies, through joint financial and management support.
I believe PSOM’s approach is sound because it is based on a number of key principles that also underpin my policy. The Emerging Markets Cooperation Programme is geared towards increasing employment. On average, a PSOM project produces 150 jobs and raises the income of the local population.
New activity also creates employment indirectly: work for other companies in the region, as in Macedonia where a pallet factory could be built after a PSOM project had invested in the production of high-quality nails. A project can also generate work for construction companies that build the factories and offices, for transport companies that ship the goods, for the suppliers of raw materials and for the women in the village who work at the company canteen or provide day care for children.
So PSOM projects do more than generate income for employees and their families. They benefit the whole community. In villages building activity increases, people have more clothes, more goods are traded, children can go to school, and healthcare insurance becomes available. In many cases, roads are built and electricity cables are laid.
What is more, PSOM projects encourage companies to do more than merely start a business. To go the extra mile. These extra contributions, many of which exemplify corporate social responsibility, are laid down in the contract between the company and EVD – the Agency for International Business and Cooperation – which runs PSOM. In my view, this is a very significant aspect of the programme.
Innovatie
Another explicit aim of PSOM is to support innovative, high-risk projects. This is another reason I applaud the approach and want to stay involved. Only proven technologies may be applied, but the project must bring something new to a particular market. In many cases it isn’t the end product that is new, but rather the operational processes, technologies or logistics.
For example, I was told about a company in Ghana that makes charcoal out of coconut husks, which used to be worthless. The charcoal is then used in the pharmaceutical industry. I’ve also heard of a prawn farm in Ecuador that uses solar energy and is certified to the highest environmental and food safety standards. There is a wonderful project in Vietnam that is training local farmers and enabling them to supply supermarkets by setting up a distribution chain. As a result, farmers’ profit margins are higher.
PSOM has launched nearly 500 projects in the past ten years and about 70% have succeeded. Unfortunately, 30% end prematurely. But this is actually a small percentage if you consider that these are high-risk projects on high-risk markets.
For example, a project in Africa was dogged by misfortune and ultimately abandoned: a storm destroyed the factory’s new roof; both project partners had illness in the family; intermediaries failed to pay the farmers so the project partners had to pay twice; and due to construction delays, the factory wasn’t finished in time for the harvest.
If every project would succeed, we would have to wonder whether the EVD was selecting the projects with the right risk profile and whether PSOM was actually necessary.
Toekomst PSOM
I can assure you that PSOM is still necessary. After ten years, we can conclude with absolute certainty that PSOM has made an essential contribution to the development of the private sector in developing countries, and has created jobs and generated income.
That is why I want to keep giving bold entrepreneurs like you and your partners in developing countries the chance to put innovative ideas into practice and take risks.
Modern development cooperation works, and I’m proud of it! Development economists Jeffrey Sachs and William Easterly agree on the importance of the private sector in propelling international action on development cooperation. The private sector can act more efficiently and faster than the public sector. Entrepreneurs know the workplace, dare to take an innovative approach and see what investments are needed to stimulate economic growth. Market-oriented thinking is crucial and leads to success.
ORET, the development-related export transactions programme, an important instrument for public-private partnership, failed to produce enough development-related results. And the long-term sustainability of its projects could not be guaranteed. There was too much attention to export and too little attention to maintenance. I had to make adjustments to this programme to remedy these defects. The new ORIO programme, which will replace ORET on 1 January 2009, is aimed at multi-year, sustainable partnerships that focus more on factors that are relevant to development and are better able to achieve results.
The new ORIO programme is centred round demand from developing countries. Proposals may be submitted during specified tendering periods. The more a proposal contributes to achieving the MDGs, the more points it will be awarded. And fragile states have priority.
PSOM too has undergone some adjustments, because I didn’t want to waste any time. Due to a court judgment, the programme has been updated: instead of awarding contracts, from now on it will award grants to support innovative investments in developing countries. And to reflect this new, modernised approach, the programme will be given a new name: PSI, which stands for Private Sector Investment programme.
Like the new ORIO programme, PSI will provide untied aid to a number of poor countries in accordance with the OECD/DAC guidelines.
The new programme focuses on all development cooperation partner countries, the Least Developed Countries on the current list and the promising economies identified by the Ministry of Economic Affairs. A few countries will be removed from the list, such as China, Ecuador, El Salvador, Honduras, Namibia and Sri Lanka. A new partner country, Kosovo, will be added. Brazil will be included for another two years. So the new programme is now open for 47 countries.
The grant scheme will be published this autumn, so you will be able to read about all the changes.
PSOM currently receives 55 million euros a year in development aid. Considering its success and the business community’s enthusiasm for innovative projects in underdeveloped markets, I am willing to make additional funds available for the new PSI programme. My annual contribution could rise to 70 million euros in the next few years. Through the new programme, therefore, I plan to support many more innovative investments over the next ten years.
Ladies and gentlemen,
I wish you every success in the future and hope that you will keep on investing! Enjoy this well-earned celebration.
Thank you.