Ladies and gentlemen,
Tomorrow, a horticulture mission of thirty representatives of small and medium-sized Dutch businesses will be leaving for Ethiopia on a three-day visit. They are going to investigate trade and investment opportunities in a sector that is important to us and to Ethiopia. The mission is an initiative of our ambassador in Ethiopia.
It might seem strange that diplomats and public officials are leading these kinds of initiatives. But on the contrary, it is essential for the public sector to engage with private enterprise. Public authorities like my Ministry should make every effort to work together with the business sector. In Ethopia, our goal is to help reduce poverty, by promoting employment, income and economic growth. And that’s why it makes so much sense for an ambassador to be giving the private sector a helping hand.
Are multinationals and developing countries a matching couple? That is the intriguing question we are discussing today. However, International business is not limited to large enterprises like Unilever, Philips, McDonalds and Coca Cola. Companies of all sizes, from large to small, operate internationally. The Netherlands is home to some seven thousand large companies. But it is the seven hundred thousand small and medium-sized enterprise that are the real driving force behind economic growth and employment. The same could be said of many other countries, including developing countries.
Developing countries cannot grow out of poverty without the international private sector’s expertise, capital and involvement. The two make a fine match. They even make a better match if the public sector is also involved. I believe that public-private partnerships are the key to sustainable development.
We need to make an extra effort to boost economic growth in developing countries, especially in Africa. That idea is no longer taboo in development cooperation. We need growth to reduce poverty. The public sector cannot produce that growth. But it can help to create the conditions for stronger growth, and for growth that benefits the poor.
I shall devote the first part of this address to the synergy between the public and private sectors. I shall then give you some examples of how we promote this perfect match through our development policies.
++ The synergy between the public and private sectors
Let me give you three examples of synergy.
+ First: the public sector creates better trade opportunities for developing countries. The private sector can then take advantage of those opportunities.
It is crucial for poverty reduction that the rich countries give the rest of the world greater access to their markets, and reduce the subsidies that distort trade. The 310 billion dollars that Japan, the EU and the US spend annually on support for their agriculture sectors cost poor countries 26 billion dollars a year. That is a key finding of a report released last month by the Bread for the World Institute.
Cotton is an interesting example. Calculations show that developing countries are missing out on billions of dollars from cotton exports because of subsidies the EU and the United States pay to their cotton producers. And it’s farmers in African countries like Mali, Benin, Burkina Faso and Tanzania who are suffering. The cotton issue is beginning to make its way onto the international agenda. Recently, a WTO panel was appointed to look into US cotton policy. The Netherlands will support its partner countries in West Africa if they exercise their right to join this panel.
If rich countries lower their trade barriers, it could boost annual growth in developing countries by an extra 0.5 percent in the long run, and lift an additional 300 million people out of poverty by 2015. That is an amazing prospect. Fairer trade policies create opportunities for developing countries. But developing countries still have to put in a lot of effort to create an environment where businesspeople can take advantage of those opportunities. I’ll come back to that point shortly.
+ A second form of synergy involves the flows of funding.
A total of 57 billion dollars was spent on development aid in 2002. An increase, for the first time in years. That is in line with the agreements we made at the Financing for Development conference in Mexico last year. The United States and the European Union promised to step up their efforts.
That is wonderful. But private investment still generates a much bigger flow of capital to developing countries. FDI flows have dropped radically in the past few years, mainly as a result of fewer mergers and acquisitions in the West. But the volume of FDI in developing countries has remained much the same.
It includes a high percentage of greenfield investments. Not take-overs of existing companies, but genuinely new activities. We expect a net inflow of 145 billion dollars in FDI to developing countries in 2003. Much more than all the aid money put together. Of course, the benefits of FDI are far from evenly distributed among countries. But it is only in the Least Developed Countries that FDI is less than aid money.
Are public and private capital flows completely separate? Often they are treated as such. But it should not be like that.
It is the task of governments to create a climate that attracts investment. The case for creating a good investment climate is simple. An economy needs a predictable and stable environment in which people, ideas and money can work together productively and efficiently. A good, reliable investment climate spurs domestic investment and attracts foreign investors. And countries that succeed in attracting more FDI enjoy faster growth and greater poverty reduction.
I have just said that if the rich countries pursued fairer trade policies they would create more opportunities. But that is not enough. Steps need to be taken within developing countries too.
Poor countries are aware that improving the business climate is the key to success. And they want to improve. That is why we are working hard to strengthen governance, introduce transparent taxation and better laws on competition, promote a strong local financial sector and build a better physical infrastructure. How will free access to European markets help the sugar grower in Mozambique if transport costs in his country are ten times higher than elsewhere? In many developing countries it takes too long for people to start their own businesses. In Mozambique, for instance, it takes 214 days. In countries like Canada or the Netherlands it does not have to take more than a couple of days.
Public investment in sectors like education and health care also helps to improve the climate for the private sector. Strong health care and education give people the tools they need to take advantage of opportunities in the global marketplace.
Both are policy priorities. We put a great deal of energy into the fight against AIDS. And our expenditure on basic education will rise next year to fifteen percent of our budget. We are also aiming for better vocational education. A survey conducted by our embassies shows that poor vocational education is an enormous obstacle for the private sector.
In short, public investment in development can help accelerate sustainable growth and encourage flows of private capital.
+ The third form of synergy I want to talk about involves monitoring the balance between public and private interests.
A flourishing private sector is the engine that powers the economy. But it is important for the poor to have access to resources and services, subject to government guarantees. Government protection and private initiative make a sound combination for poverty reduction.
A good example is the water sector. Organising water supply is no simple matter, and there are no simple solutions. A naïve faith that the government will take care of everything is as undesirable as the drive towards total privatisation. I am convinced that government and the market both need the freedom to do their work. Government sets the rules and the conditions. It makes sure that a scarce commodity like water is distributed fairly to as many people as possible. And government drafts and enforces rules to prevent pollution and waste.
Private companies actually supply the water and they ensure quality and continuity. Obviously, they are allowed to make a profit, as long as they operate within the parameters of accessibility, public health and sustainability set and enforced by government.
It will ultimately be up to the citizens of developing countries to expose antisocial behaviour on the part of business. That is why we devote so much attention to strengthening civil society. We do so through the co-financing organisations and two of our trade unions. And we are also trying to persuade Dutch consumers to take production methods into consideration when they shop. We are now helping our consumer organisation to incorporate social screening into its product comparisons.
I am happy to say that foreign investors are becoming ever more conscious of their responsibilities. For example, Heineken runs an AIDS prevention programme for its personnel. Shell has improved its conduct in Nigeria. And the big coffee companies are now taking more account of the vulnerable position of coffee growers.
AHOLD Coffee and Simon Levelt are two companies that support the Utz Kapeh initiative, which lays down a new code of conduct for coffee production and helps growers comply with that code. An important feature of the Utz Kapeh initiative is that it focuses not only on better social and environmental conditions, but also on a minimum price that enables the producers to meet those conditions and keep their heads above water. More recently, the coffee company Douwe Egberts has begun responding in a constructive way to charges by an NGO coffee coalition that it is not adhering to labour laws on plantations in Kenya.
++ How to promote the public-private match: a few concrete initiatives
The Ministry of Foreign Affairs actively encourages investment in developing countries in various ways. Poverty reduction is our constant aim. Foreign investment can contribute to poverty reduction by generating jobs, offering local people new opportunities to earn more money, and helping to open up new export markets, also in the region. Of course, the jobs created must meet the standards in the ILO conventions. These are matters we take special account of. But it is difficult to quantify all the effects. As a modern, result-driven government, we are working hard to find ways of measuring the impact of our efforts.
I want to present you with a few examples. We have now completed six projects within the Emerging Markets Cooperation Programme. They have generated 765 full-time jobs, and have helped nearly 4000 farmers boost their incomes. In all these projects, wages were either equal to or above the minimum wage. Some benefited the environment or promoted gender equality. The programme will be extended from 10 to 16 countries in 2003. Dutch companies in joint ventures with local entrepreneurs may be eligible for grants amounting to fifty or sixty percent of their total investment. A good example is the successful safflower seed project in Tanzania. The 2,000 farmers who participated now earn more money, and there is also a factory producing oil.
Last year we launched the Netherlands Investment Matching Fund, to encourage FDI. The Fund will match private investment in a local business in a developing country. A typical project will entail private investment of between one and five million euros. The Fund then invests the same amount. It holds a share in the company, which it sells after about five years.
We also encourage Dutch investors in developing countries to exercise corporate social responsibility. Because it is in developing countries that regulations and their enforcement are often unsatisfactory, so that entrepreneurs themselves have to set high standards. As a Christian Democrat I strongly believe in self-regulation. The OECD guidelines for multinationals provide an excellent basis, because they include matters such as fair competition and payment of local taxes. But we cannot leave everything to self-regulation. That doesn’t work.
That’s why my Ministry has approached the big supermarket chains in the Netherlands about the negative consequences of introducing the EUREP/GAP standards for all imported fruits and vegetables by 1 January 2004. Albert Heijn already introduced this standard on 1 January 2003. A lot of small-scale farmers from Kenya can no longer supply fresh beans to the European supermarket chains, because they cannot individually afford the costs of the new certification process. I am now in negotiation with the Dutch Central Bureau for the Foodstuffs Trade on the issue of whether the private sector can help these farmers to meet reporting requirements and other relevant conditions. This may well prove to be another case where the best solution comes from the private and public sectors working together.
I am strongly in favour of involving the business community, the trade unions and civil society organisations in development cooperation. Last month, I signed a covenant with Agriterra, an organisation that helps farmers and farmers’ associations improve their business skills. That includes being able to conduct a policy dialogue with government. To be strong, farmers have to join forces. That is why they need the support of the Dutch Farmers Association.
The next step is setting up a platform for the financial sector. Strong banks, good insurers, efficient stock markets and customer-friendly leasing companies are sources of income, profit and employment. But they are more than that. They supply essential services to large and small businesses and help them to invest. We support these highly important financial services at multiple levels, and with multiple partners.
In many countries, small banks have been set up to enable small businesses and poorer consumers to save, and to take out insurance and small loans. We support the cofinancing organisations NOVIB, HIVOS, ICCO and we work with organisations like the Rabobank Foundation and Interpolis to encourage this kind of microfinancing.
The Netherlands Development Finance Company supplies loans for larger companies and financial institutions. It is one of the leading development banks in Africa in this field.
There are many organisations and companies in the Netherlands with an interest in strengthening the financial sector in developing countries. Many can provide policymakers, bankers and investors in those countries with very useful information.
For instance, Dutch banks know how to set up a network of offices, even in the difficult circumstances prevailing in a country like India. Our insurance companies know what it takes to organise pensions in countries like Mexico. The Dutch central bank and the Ministry of Finance can tell you precisely how to draft and enforce laws for supervising the financial sector. And let us not forget the Dutch universities, including this one, where people study financial sector development and come up with important new insights.
I am therefore delighted that you have decided to launch a partnership combining the knowhow of the public and private sectors. I shall make a personal effort to turn it into a success.
Apart from all these national initiatives, we are of course also promoting synergy and partnership at international level. In relation to the environment, energy and health. Or to infrastructure, through the Emerging Africa Infrastructure Fund for private investment in Sub-Saharan Africa.
Ladies and gentlemen,
In the end, it is economic growth, more than anything else, that makes it possible for developing countries to fight poverty. That is why the private sector is an indispensable partner. Foreign investment can contribute, bringing not only economic growth but new expertise as well.
Public-private cooperation has great advantages and great potential, but it is hardly free of risk. After all, every rose has its thorn. There is the risk of corruption, or the risk that some companies will misuse poverty reduction to pursue other aims entirely. I have heard those concerns expressed during and since the World Summit for Sustainable Development in Johannesburg.
My solution has a public and a private side.
On the public side, you need good governance to make public-private partnerships a success. That’s one of many reasons to invest in better governance in developing countries.
And on the private side, it is essential for every company, big and small, to shoulder its responsibilities and to look beyond its own short-term interests. Private enterprise should mean more than just pulling in business and banking the profits.
In conclusion, what can make the public and private sectors such a good match is their common interest in more sustainability and less poverty.
Thank you.