1 - 7 December

 

CONTENTS:
The Quest for Incentives - William Easterly at Venice II
Nigeria: Rural Industrialization through Renewable Energy Technology
Ozone Friendly Industrial Development
Tunisia Integrated Programme Newsletter
COMING SOON
Feature Story: Ozone Friendly Industrial Development ~ 10 Years of UNIDO in the Montreal Protocol
Other Industry-related Newsletters
PRINT-FRIENDLY VERSIONS of UNIDOScope

The Quest for Incentives ~ William Easterly at Venice II

This is the eighth article in a series on the UNIDO forum Venice II, held on 3 - 4 October, 2002
Venice, Italy, 4 October, 2002

William Easterly at Venice II

Introducing William Easterly to Venice II, UNIDO Director - General Carlos Magariños reminded the forum that when proposing what it believes to be policies that will influence the development of a dynamic private sector and stimulate productivity growth in developing countries, the development community has to be mindful that it is imperative that the policies not only be good, but will also be attractive to the electorate. That is, no matter how theoretically sound a policy is, it must also contain an incentive for the politican to put it to the electorate. As Professor Kolodko was quoted in an earlier article on Venice II, regarding his task as Finance Minister of Poland, " The question of policy management is much more important at this stage than, say, simple economic theory. The question is not "how much is two times two?", we know that it is four! But so often we do not have the majority to make it law, ... or the ability to convince public opinion that it is so..." To Kolodko "Policy is not only about coordination, policy is about conflict management... it is an art, not just a knowledge or technocratism".

Director - General Magariños called Venice II because of his belief in the urgent need for a new development agenda. Similarly, after spending some 16 years as a research economist at the World Bank, Mr. Easterly also believes there is a need for a new development agenda, for "a revolution in development thinking and practice". His thoughts on this are the subject of his recent book, "The Elusive Quest for Growth". Easterly's central message at Venice II was incentives, "People respond to incentives. When we get the incentives right, then we will know economic growth".

Speaking from his experience with international financial institutions, Mr. Easterly referred to three major areas in international development to illustrate his "incentives principle": the provision of funds to developing countries; the functioning of national and international bureaucracies; and the belief in key interventions.

On the need for international financial institutions to be mindful of incentives when providing money, Mr. Easterly said: "Simply having a monetary inflow into the economy does not automatically create investment. People will chose to invest only if they feel motivated to invest, only if there is a good business climate, if there is a good prospect of a good rate of return to capita will they invest. If those incentives are absent, then money inflows will not finance investment, they will wind up financing consumption. The benevolent money will not necessarily go into investment, and even when it does, investment by itself does not necessarily create economic growth. Again, incentives come into play, even if the machines are there, the businessmen and businesswomen have to feel the incentive to purchase the raw materials and the labour and to adapt the modern technology that goes with the skills, and the workers have to have the incentive to acquire the skills to use the machines. All of these things have to come together, by the interplay of many interelated agents that all have to feel the incentive to invest in advanced technology, skill and efficiency, in order for investment to have a payoff in economic growth".

The requirement that "All of these things have to come together" means, of course, that "getting the incentives right" is as complex as, and could easily be as elusive as, the quest for growth. It was clear from other presentations and the responses to Mr. Easterly's presentation that a lot of thought has been given to incentives. The importance of incentives was also stressed by, UNIDO Director - General Magariños, in his keynote address to Venice II;  "How best can private and public sectors cooperate to develop the supply of public goods required to foster domestic entrepreneurial and technological development?  And how best to articulate such supply with an incentive system to obtain sustained private sector-led productivity growth? One "right incentive" for investment, suggested by President of the National Confederation of Employers of Senegal, Cama Mansour, in his comments on the "necessary and sufficient conditions" presented earlier at the Venice II forum by Director of DFID, Adrian Wood, would be to ensure there are "business- oriented minds within our Administrations". A similar suggestion was made at the recent meeting of the Eastern Chapter of CAMI  (the Conference of African Ministers of Industry), in Arusha, Tanzania, 24 - 25 October, 2002. Where it was suggested that steps be taken to ensure that most of the support institutions servicing the private sector be headed by private sector representatives.

In all of Easterly's examples of "getting the incentives right", the emphasis was on the need to be proactive and never to assume the right incentives are in place. And the need to get the incentives right applies equally to developed and developing countries. On bureaucracies at the national level, he said that the first mistake is to assume bureaucracies actually want economic development. "Politically, government bureaucracies do not necessarily want economic development. What they want is enough patronage resources to sustain themselves in power. Governments in polarized societies often choose redistribution away from those who are outside the ruling coalition, towards those who are inside the ruling coalition, instead of chosing long-run economic development".

Mr. Easterly then turned to the international bureaucracy. Finding the right incentives for international organizations to find the most efficient possible way to reach the poor is an important part of his revolution in development thinking and practice. He pointed to the failure of the structural adjustment programmes to bring "adjustment with growth" as another case of inadequate attention to the right incentives. According to Mr. Easterly, at the core of this failure, is "a cardinal principle of bureaucracy, that holds true everywhere: a bureaucracy can be defined as an organization where no one is to blame". With these kinds of organizations, he says, "it is not surprising that no one is motivated to actually achieve results on the ground. The beginning of the revolution will certainly be in changing the equation and holding bureaucracies accountable for the results and holding individuals within the bureaucracies accountable for the results that they deliver".  DFID Director Adrian Wood brought the forum's attention to a related problem faced by national bureaucracies in managing the development process in its current form; "I do not have to tell President Sumaye (co-chair of Venice II), that having some 15 bilateral agenices running around Tanzania on top of all the multilaterals, occupies a good deal of time of the people who are meant to be governing and administering Tanzania".

The last area on which Easterly spoke about getting the incentives right was interventions. He believes international financial institutions have approached the economic development of poor nations as though "going in quest of the holy grail. ... The kind of magical objects that we tried as international financial institutions were things like schools, health clinics, family planning, central bank independence, currency boards. Major reforms in public administration and democracy is probably the latest fad to come down the road. Democracy and good governance, cleaning up corruption, these are all sort of magical ideas. ... None of these magical objects will work if the incentives of all the players in the development game are not right to make them work".

For development to work in the future, Mr. Easterly believes "the kind of things we need to move away from are this over emphasis on quantities of inputs. ... how much money was dispersed, how many schools were built, how high investment was. These are all inputs into economic development, these are not the outcomes of economic development. ... Instead we should concentrate on reorienting incentives so that all the players in the development game have the right incentives. ... To do that requires very basic changes in institutions at the international and national level".

At the international level, only when institutions are held accountable for failures, "will they really feel the incentive to change and to achieve results as opposed to just trying to mobilize quantities of inputs. At the level of national governments, we also need deep changes in institutions, the kind of institutions that create a good business environment, such as protecting private property, enforcing contracts, having an easy transparent system for registering land titles, protecting citizens against predators, against corrupt government officials, having governments accountable for their actions.  These kind of deep changes in institutions are necessary and they cannot be achieved overnight.  They cannot be set as one of the goals in the five-year plan to be achieved overnight or even in the next year or in five years but there will be a gradual change in institutions that will gradually lead to economic development".

Mr. Easterly does not want "incentives" to become the new holy grail. "There is no big answer, ... what we need, I think, in the revolution that will involve better institutions and better incentives is just a lot of experiments. Something like school decentralization, as an experiment. It works under some circumstances and not in others".
  Francisco Sercovich, Tel: +43 1 26026/3079, E-mail: F.Sercovich@unido.org

Nigeria: Rural Industrialization through Renewable Energy Technologies

Abuja, Nigeria, 14 - 15 November, 2002

mini hydro electric plant

A National Stakeholders Forum on Rural Industrialization and Development through Renewable Energy Technologies, organized by UNIDO in Abuja during 14 and 15 November ended with the signing of a memorandum of understanding (MOU) between Energy Commission of Nigeria and the UNIDO International Centre for Small Hydro Power (IC-SHP) in Hangzhou, China calling for capacity building activities and pilot projects in the area of small, mini and micro hydro development in Nigeria. IC-SHP will now strive to identify a donor to finance two 5-10 kW micro hydro sets for trial and demonstration in Nigerian villages. The Forum was organized in collaboration with and financial contributions from the Energy Commission of Nigeria and six Federal Ministries (Agriculture and Rural Development, Power and Steel, Water Resources, Industry, Environment and Science & Technology).

The Abuja forum follows closely on the launching of UNIDO's new initiative on "Rural Energy for Productive Use" by Director - General Carlos Magariños at the World Summit on Sustainable Development (WSSD) in Johannesburg, in September, 2002. The UNIDO rural energy initiative emphasises "productive use" because it has been demonstrated in programmes on every continent that the very poor cannot afford the up-front costs of energy-related installations and find it difficult to pay for energy services afterwards. For the programme to be sustainable, the programme has to ensure that the energy generation is connected with income generation. An integral part of this approach is to build local capacities in renewable energy technology and to promote local assembly and manufacture of energy equipment and structures. The programme works with renewable sources of energy, such as solar, mini-hydro, wind and modern biomass.

WSSD observed that the lack of access to clean, affordable and efficient energy services, is a major barrier to achieving meaningful and long lasting solutions to poverty. In any situation wherever poor people and communities obtain access to convenient and efficient energy services, a major barrier to poverty alleviation can be removed. Therefore the forum was seen as central to Nigeria's current poverty alleviation efforts.

Nigeria is rich in renewable energy resources - biomass, hydro-power, solar, wind and geo thermal - presenting the potential for the country's rural poor to access energy services and foster sustainable development with practically no net emissions or greenhouse gases. The exploitation of these resources in turn will help to alleviate poverty by creating employment and income generating opportunities and better health for the rural population. Strategies that focus on small scale decentralized renewable energy systems, utilizing locally available renewable energy resources, coupled with greater access to information, technical training, credits and market facilities have the potential to succeed in promoting sustainable development in Nigeria. Lessons learned from China and India confirm that recent technological advances in renewable energy based power generation, accompanied by rapid growth in production and reduction in cost place renewable energy technologies in a favourable position

Forum discussions emphasized the need for immediate and extensive utilization of various types of renewable energy technologies and resources available in Nigeria, especially small hydropower resources, which has a number of unique attributes that make it particularly suitable to Country's present day needs in view of its enormous potential in the country.

Some 100 participants from various Federal Ministries and Government agencies involved in rural energy development in Nigeria, academia, NGOs, donor community and other stakeholders attended the meeting. There was high-level participation from the Prime Minister's Strategy Unit, the UK Government and the Indian Renewable Energy Development Agency (IREDA). A meeting of NGOs promoting renewable energy in Nigeria and the launching of Nigerian Chapter of International Network on Small Hydro Power were held as side events to the Forum.

The first recommendation of the forum was "that an energy policy which emphasis the development of renewable energy resources and technologies should immediately be put in place". Among the other recommendations is the holding a National Round Table, comprising private, public sector, and civil society representatives. This group should also form two sub-committees one on renewable energy and another on non-renewable energy. The full list of recommendations adoped by the forum are available here for viewing or downloading.

Meanwhile, in Austria, the location of UNIDO HQ, the theme of the Third Meeting of the Global Forum on Sustainable Energy (GFSE), held in the city of Graz 27 - 29 November, 2002, was "public-Private Partnerships for Rural Energy Development". The meeting will examine the outcome of the WSSD and contribute to the further development of initiatives to promote implementation, such as the EU initiative on Energy for Poverty Eradication and Sustainable Developemnt. View or download the Forum Programme. See the Forum site (www.gfse.at) for more information.
  Kandeh Yumkella, Director, UNIDO Nigeria, E-mail  kandeh.yumkella@undp.org
  Jossy Thomas, Environment Technician, UNIDO Nigeria,  E-mail jossy.thomas@undp.org
  Cahit Gurkok, UNIDO HQ, Tel: +43 1 26026/4575, E-mail: C.Gurkok@unido.org

Ozone Friendly Industrial Development

animated gif courtesy of Dr. Glen Carter's ozone tour

The ozone layer lies approximately 15-40 kilometers (10-25 miles) above the Earth's surface, in the stratosphere. Ozone absorbs a band of the sun's ultraviolet radiation called UVB that is particularly harmful to living organisms. Substances used in industry and agriculture such as chloroflurocarbons (CFCs), halons, carbon tetrachloride, methyl chloroform, HCFCs, HBFCs, and methyl bromide, deplete the ozone layer. Continued emission of these ozone depleting substances (ODS) will lead to higher UVB levels, which in turn will cause increased skin cancers and cataracts and potential damage to some marine organisms, plants, and plastics.

In 1989, the Montreal Protocol came into force to deal with the problem of ozone depletion. Since then, 183 countries have signed, two thirds of which are developing countries. The Montreal Protocol Multilateral Fund (MLF), financed by developed countries, was set up to assist the less-developed countries, "Article 5 countires", to comply with their obligations under the Protocol to phase out their ODS. In October 2002 UNIDO completed ten years as one of four implementing agencies of the MLF.

In that time UNIDO's plant-level intervention, mainly in six areas: refrigeration, plastic foams, halons, solvents, fumigants and aerosols, have proved both cost-effective in tems of reducing atmospheric ozone-depletion and beneficial in improving competitiveness, enhancing export potential, generating employment and transferring technology.

To mark its achievements over the last ten years, UNIDO has published a booklet Ozone Friendly Industrial Development - Ten Years of UNIDO in the Montreal Protocol. A feature article looks at some of the achievements reported in that publication.
  Seniz Yalcindag, Tel: +43 1 26026/3347,  E-mail:  S.Yalcindag@unido.org

Tunisia Integrated Programme Newsletter

A number of Newsletters on the UNIDO Integrated Programmes (IPs) were distributed to UNIDO Member States at the recent meeting of the Industrial Development Board. They will be accessible via coming issues of UNIDOScope. This week: The Tunisia IP Newsletter (French)

COMING SOON

International Exhibition for Enterprises - Promote 2002, Yaounde, Cameroon, 30 November - 8 December, 2002. Held by the Ministry of Industrial And Commercial Development of Cameroon, under the patronage of President of Cameroon, Paul Biva, the theme of the event is "The challenges faced by industrialists in Africa: Investment and Relocation". UNIDO representative in Cameroon, Fatima Benanni, will make a presentation on "Entrepreneurs and industrial sectors in Africa - Diversity, specialization and sectoral trends".

13th International Training Programme on Industrial Project Preparation and Appraisal with Special Focus on Fruit and Vegetable Processing Sector 2 - 20 December, 2002, Mysore, Karnataka, India. The programme is offered by the Inter-Regional Centre (IRC) for Entrepreneurship and Investment Training created by UNIDO and Government of India at Entrepreneurship Development Institute of India (EDI). Details.

more coming events

Send your comments to the editor: K.Timmins@unido.org