Industrial Development Board, 21st session

Opening Statement of the Director-General

Mr. President,
Distinguished Delegates,
Ladies and Gentlemen

Let me first congratulate the Bureau on its election. I am sure that under the Presidency of Ambassador Regeuig, we shall together achieve positive results for UNIDO at this 21stsession of the Industrial Development Board.

I would like also to express my sincere gratitude to our outgoing President, Ambassador Pittaluga Fonseca, and his Bureau, for the effort they made to move forward the transformation of UNIDO. I am sincerely grateful to all of them.

It is also with great pleasure that I welcome all of you this afternoon. I am pleased to see such a large attendance - I hope that this reflects Member States' interest in the work of UNIDO, and in the important decisions that we will take at this session. In particular, I welcome the delegates who have made the long journey from their capitals ? His Excellency, Dr. Ahmed Nizam Al-Din, Minister of Industry of the Syrian Arab Republic; His Excellency, Mr. Abilio Bichinho Alfino, Vice-minister of Industry, Commerce and Tourism, Mozambique; Mr. Ajit Kumar, Secretary, Department of Industrial Policy, Promotion and Industrial Development in the Ministry of Industry, India; Mr. M. Rantekoa, Principal Secretary, Ministry of Industry, Trade and Marketing, Lesotho; Mr. Dennis Chetcuti, of the Department of Industry, Malta; and Mr. Oleksandr Brodsky, Deputy Head, National Agency of Ukraine for Development and European integration.

Mr. President,
I will take this opportunity to introduce the work of the Secretariat in the past month since the last meeting of the Programme and Budget Committee. I will ask some of my colleagues - the members of staff who have been working very hard to put together many things to achieve the integrated packages of services - to share their work and the difficulties they found, and that still lie ahead.

We are at a critical point in the history of UNIDO. We will have to review the work of the PBC, and within that to consider the Programme and Budget. I hope that on Friday we will be able to look back at our work and judge that in at least one way the 21st session of the IDB was also a turning point. The time when Member States took a close look at the financial support required for future programming. When they and the Secretariat ceased to worry intensely about UNIDO's immediate prospects. And when, instead, Member States began again to consider the medium and long-term role of their instrument of global governance in the field of sustainable development.

It is a little over 18 months since Member States approved the Business Plan on the Future Role and Functions of UNIDO at the 7th General Conference. That significant agreement between developed and developing and transition countries was indeed a model of partnership. It lay the grounds for UNIDO's survival, and its implementation has consequently been reviewed many times since. I will therefore not tax your patience on this again.

But we should not forget that 18 months is not a long time for the radical changes involved, and that implementation was always foreseen as a three phase approach. First, the financial, personnel, administrative and structural reform(our immediate attention to how UNIDO should work). Second, the development of 16 service modules (our refocusing of what UNIDO offers). And thirdly, the set of demand-oriented country programmes that will be formulated by the end of 1999 (which is the operationalization of the whole reform).

That said, I would agree: our transformation is still not yet complete. Still to be developed, and mainly where I would like to direct Member States' attention at this 21stsession, is one thing: the operationalization of the integrated country programmes.

Mr. President,
By the end of 1999, the Secretariat will have prepared around 40 integrated country programmes. This reflects an unprecedented single-minded effort to deliver what Member States have said they wanted throughout the UNIDO transformation: namely, a new approach to technical cooperation with built-in value-for-money guarantees.

As of this moment, 25 of the planned 40 integrated country programmes are ready. Seven of them are already operational, 18 are formulated and ready for the start of discussions for funding. Their total value, as you can see in the folders distributed at the beginning of this session, is 5 million, their average value, .6 million. They are completely in line with Business Plan priorities:

    * 15 of the 25 are for African countries. Africa thus accounts for 60 per cent of the total effort (measured both by the number of programmes and their share of the total project budget). Altogether, LDCs account for one third of the programmes and one third of the total budget.
    * All but one programme cover the agro-industry sector, and all but two programmes are concerned with environmental matters.
    * As a result, over 25 per cent of the planned budgetary inputs relate to agro-industry expertise and the service module for that area; and 15 to 17 per cent relate to each of the following three areas: SME development, quality enhancement and environmental improvement.

I hope you will agree, Mr. President, that the Secretariat has fully played its part. The next stage is up to Member States themselves, obviously working together with the Secretariat. As the document we distributed before this meeting says (and is also enclosed in the folder we distributed at the beginning of this session) we believe that funds mobilization is the next major challenge of the transformation process. I therefore very much welcome the initiative of the Group of 77 and China in requesting that this aspect be added to the agenda of the IDB's 21st session.

We ourselves will be organizing a series of consultation meetings, both here and in the different capitals during the next six months. Full details of the progress and prospects for the integrated programmes will be reported immediately after my own presentation by the Director of my office, Mr. Octavio Maizza-Neto, and the group of team leaders that were driving the formulation of the programmes at the field level. He will also emphasize our willingness to hold an open dialogue and our interest in including Member States' suggestions regarding the programmes.

Mr. President, I have begun my remarks this afternoon with the status of the integrated country programmes and their funding because it concerns the culmination of the transformation of our approach to technical cooperation. Necessarily it had immediate implications and therefore top priority. With that goal now within our sights, I would like, if you will allow me, to talk for the first time about the economy in these meetings, or at least about economic issues that concern industrial development. Up to now I have been talking mainly about administrative measures and improvements in our technical cooperation approach. But I think it is now necessary to put this into a broader framework. And for that it is necessary to analyse some economic issues.

It has been discussed in recent months, within the multilateral system and in centres of economic research, whether or not a new economic development paradigm is needed. But whatever the answer to that question, economic thinking in my view is moving on. Economic ideas, Prof. Galbraith points out, always reflect their time and place. They already changed in response to the radical changes in the 20th century society - for example, the emergence of large companies and trade unionism, the experience of war and economic depression, economic growth and diffusion of prosperity, the new and powerful role of central banks, the reduced share of agriculture, the parallel increase in urbanization and urban poverty, the appearance of the welfare state, the new responsibilities of governments for the functioning of the economy and the emergence and demise of planned economies. At the end of the 20thcentury, they must change again in response to the challenges of globalization, of global governance and of information technologies.

The direction development economics is now taking has direct relevance for UNIDO. Its new focus is on inequality, under-development and the dis-equilibrium suffered by most developing countries - particularly the origin and ongoing causes of their poverty. It is a major departure from classical economics whose traditional concern for development and for equilibrium can be traced all the way back to Adam Smith. In 1776, however, the nations whose wealth Adam Smith studied numbered only 20. Today there are more than 200 sovereign states, and most of them are in a state of, not ?equilibrium', but ?dis-equilibrium'.

This is apparent in the numbers that describe our world today. Where 84 per cent of the population shares only 19 per cent of global income, or, if you prefer, where 56 per cent are restricted to only 5 per cent of that income. Where, despite some convergence, per capita income over the past 15 years has declined in more than 100 countries around the world. Where indicators show that the number of people below a poverty line of per day rose between 1989 and the mid-1990s by 133 million, due to the plight of parts of Eastern Europe; where, in 60 developing countries, personal consumption has been declining annually by 1 per cent. And as a consequence, 1.3 billion people survive today on less than id="ucfLayout02" onload="try { OnBodyLoad(); } catch(e) { }; afterload();" per day, sixty per cent lack basic sanitation, 25 per cent lack adequate housing, and 20 per cent are undernourished.

Certainly such numbers and prospects would be unacceptable in the national economy of an industrialized country - or, I think, in the national economy of any kind of country. Action would be demanded. Nobody would deny the need for intervention. The same happens in the global economy. Clearly, to govern a global economy that we have today you need a set of global institutions. The problem is, what kind of institutions and what kind of intervention, what measures will improve the distribution of economic benefit?

The answers must, I believe, focus on bringing about sustainable employment throughout the developing world. Economic policies have concentrated for the past fifty years on whether to finance or to adjust an economy in order to let it grow. The debate therefore focussed on inflation and its compatibility with growth. And in the end, as you know, it was agreed that control of inflation has to be tight, and that structural adjustment programmes and free market regimes are pre-requisites for development. I hope that now, for the next fifty years, we have to put the same effort into analysing employment and benefit distribution.

UNIDO has to play an active part. But this will require new thinking and new approaches ? for example to develop the links between innovation, technology, industry, sustainable industrial employment and sustainable employment in other economic sectors, including the service sector.

Thus, dis-equilibrium economics, despite its relatively short history, will have significant implications for all aspects of development, including industrial development. It is the economics of:

    * Sustainable global employment rather than inflation, and of
    * Alternative development paths that seek redistribution of benefits by reducing both internal and external dis-equilibria, in order to improve the quality of life of the most vulnerable population groups.

Industry is also intimately involved in the economic structure of under-development ? from the scarcity of investment capital to the under-utilization of resources, to the disarticulation of production and the resulting confinement of most countries to the primary sector. Structural under-development is why even developing countries with exemplary adherence to orthodox development prescriptions are struggling.

I always take care not to quote the experience of individual countries. But let me give the case of Ghana, one of Africa's forerunners in engaging low tariff protection and free trade. Massive depreciation, removal of import restrictions, reductions in corporate- and capital gains taxes, removal of price controls, abolition of credit ceilings, privatization of state-owned companies, revision of the investment code and granting of incentives to exporters and investors in infrastructure, were combined to give Ghana a stable, open and liberal economy by the early 1990s.

What happened? Studies show that initially MVA did rise. But as liberalization spread to other imports, and excess capacity was used up, the exposure to world competition led to a steady deceleration of industrial growth. The decline that followed the initial rapid growth meant that Ghanaian manufacturing was not taking off in response to the economic and trade reforms. Equally significant, foreign investment did not respond adequately, particularly in the manufacturing sector.

These kind of problems, which are found in many other regions, including I would point out the region I come from, South America, are not being ignored by leading nations and the world leaders. We can note, for example, this week's announcements from the G8, the Group of Seven Industrialized Nations and Russia. Their decision to cut billions of dollars from the debt burdens of the world's poorest countries will significantly reduce those countries' debt- to-export and debt-to-government revenue ratios.

More important, it will enable those countries to correct their chronic under-investment in social and economic programmes, and it will remove a major obstacle to their development of a private industrial sector.

Another G8 decision will broaden the influence of developing countries in the International Monetary Fund. Upgrading the status of the IMF's Interim Committee to become the "International Economic and Financial committee" with membership selected partly from emerging market nations is a major step towards transparency and insertion of new perspectives into IMF thinking and operations.

But need for global governance reform does not stop at re-architecturing the world's financial system. Similar concern for UN reform, as we know very well, and way other Bretton Woods institutions are functioning suggests something more fundamenta,l in my view ? serious shortcomings in the post-World War II development paradigm.

UNIDO's global forum role is to follow such experience world-wide, to isolate the causes and effects of each contributing factor on industry, and to develop feasible strategies and policies for governments, industry and the multilateral system to provide remedies. Fulfilling that role will guide not only our technical cooperation response, both to the present social and economic environment, and for the social and economic environment of the early 21st century.

Mr. President,
Ladies and Gentlemen,
I hope that you will conclude from what I have said that the global forum function has a specific task to position industrial development and UNIDO in the spectrum of global governance, that Member States have a particular role to play both at the level of the policy debate in the policy-making organs and through active participation in the fora and seminars that the Secretariat arranges, and that the Secretariat needs to pursue a variety of mechanisms that will enhance the impact of the Organization's global forum function.

I am sure you will agree also that in whatever we arrange, whomever we invite into the global forum process as experts, and however we disseminate the outcome, the key to success is to ask the right questions in the first place.

I would like, therefore, to solicit your views on the major theme for the global forum for the next two years. It is a theme that Member States themselves implicitly addressed in 1997 in preparing the Business Plan, namely the nature of the next industrial development paradigm.

The practical point for UNIDO is that the changes undermining the old paradigm are also undermining the assumptions underlying our technical cooperation. By directing the global forum function of UNIDO along this path, Member States would, I believe, demonstrate their faith in the need for good industrial governance as a development fundamental.

In calling for that step, I am very aware of its implications for the Secretariat. It will require new levels of capacity in global analysis, strategy and policy development.

This is an exercise that it important for UNIDO itself. If a new industrial paradigm is really in prospect, Member States will be called on to reposition the Organization as their instrument for assisting developing and transition countries' participation in it. They will need to ensure that UNIDO becomes what some developing countries always envisaged it as: the centre of excellence and the first port of call for advice on all manner of strategy and policy issues.

In this connection also, I propose to revitalize and strengthen UNIDO's research activities using a new sense for the word ?research' ? taking advantage of external expertise and the research undertaken in academic institutions, private sector institutions and centres of excellence around the world. I say ?revitalize' because in the past, in the 1980s, UNIDO had a strong research function. I say ?strengthen' because "thinking and doing, doing and thinking" as Goethe once said "is the sum of all wisdom." Research will underpin all the global forum activities I have mentioned.

But UNIDO is first of all, and will remain, a "doing" organization ? enhancing industrial practice to raise the standard of living in developing and transition countries. Nevertheless, being engaged in (sometimes urgent) action does not absolve us from critical reflection concerning the validity of what we are doing and assessing the direction it should take. Research therefore underpins both what UNIDO does and the way the global forum engages the larger issues of industrial development. Some of the tools are relatively new, for example those of statistical analysis. UNIDO is well best placed to use them. I would recommend reading the document we distributed called Measure by Measure and prepared by our Statistics and Information Networks Branch, as well as other documents that will be distributed soon regarding the nature of our support for small and medium enterprises, which incidentally the Secretariat managed to prepare despite the difficulties of the transformation process.

Doing must be linked to thinking. Without research, or (in some cases worse) with under- developed research, we repeat the established routines, show confidence only in established knowledge, and through habits and dogmatism lose our ability to adjust to change and progress. Research, in contrast, is an anti-sclerotic, the stimulus for action, and the defence against pseudo-scientific opinion exemplified by statements that are quite often heard, like: ?services, not industry, generate employment', ?industrial development can be left entirely to market forces' and ?industrial imports from the South will destroy jobs in the North'.

Mr. President,
The pace and scope of change in our time, affecting governments and institutions alike, result in a tendency to focus on short-term issues ? at the expense of more ambitious and (in the final analysis, more important) long-term goals and initiatives. However, it is difficult, perhaps even impossible, to build the future without at least a modicum of stability and assurance.

I therefore invite you, collectively and concretely, to support the Secretariat in working towards the objectives and tasks I have outlined this afternoon. This would be firstly by contributing to the substantive debates. But equally important by putting at our disposal the required resources, so that we may properly implement your programmes, qualitatively and quantitatively.

In this connection, as I said, Mr. Maizza-Neto will now present to you the details of the integrated technical cooperation programmes. I will close my own remarks by urging you to pay the closest attention to what he will say. We are at a critical juncture in the transformation process. Member States and the Secretariat have worked hard in the past year and a half to re- engineer the Organization and prepare it for the future. The starting point was UNIDO's impact and relevance. We believe we now have everything in place to ensure relevance and make the required impact.

Let me emphasize my central message today. I think we did a great job together during the last 18 months. And I myself learned a great deal from all of you and from the staff of UNIDO. Now is the time to decide how far we want to go with this exercise. And how relevant UNIDO will become. This is the decision at hand. We can go as far as you want. We can count on the promise of the Secretariat to implement the measures and the decisions you want to take. We already proved our commitment in this sense.

As I said in my inaugural speech, I think and I hope, I was able to convey briefly in this presentation, that UNIDO has an important role to play in the architecture of the world economic order. Not because we have offices here in Vienna. Not because we have offices in the field. Not because we have a certain membership. But because of the economic problems we all have to face. I am sure that we, working together, will be able to ensure UNIDO's role in the new world order.

I thank you for your attention
and, with your agreement, Mr. President,
I give the floor to Mr. Maizza-Neto.