Well-structured public finance can align profit and sustainability aspirations
29 Sep 2016 by Li Yong, Director-General, United Nations Industrial Development Organization
The ambitious global commitment to pursue inclusive and sustainable paths of development – outlined in the 2030 Agenda for Sustainable Development – comes at a moment that does not admit any further delay. The economic, environmental and social challenges we face are enormous and must be addressed today, before climate change, demographic pressures, fragile security situations and other unsustainable global trends take their unbearable toll on all of us.
At the same time, this agenda unveils a new set of opportunities for investments to yield unprecedented levels of economic and social dividends, provided that the appropriate co-ordination mechanisms and instruments are put in place.
This means rethinking the role of official development assistance (ODA) to increase its efficiency and impact as an international public investment tool. It means making it more co-ordinated, catalytic and targeted as an instrument for attracting additional public and private investments for the transformation we all strive to achieve. Public finance will need to focus on initiatives that can drive progress on the SDGs, bringing into play the necessary industries – with their investments and their knowledge – thus generating a virtuous circle of further investment, innovation, structural transformation and technological upgrades.
Driving the structural transformation required to increase the domestic tax base and achieve the SDGs also means targeting public finance to strengthen the institutional infrastructure and capacities of developing countries and regions to implement their own industrial policies and activities.
Environmental sustainability offers important opportunities for investment and technological exchange among “green industries” worldwide. The development of cleaner production technologies and the adoption of healthier and more equitable production-system practices will provide significant returns in terms of both private and social benefits.
Mitigating food insecurities or health risks offers similar opportunities, for example by attracting responsible agro-industrial investments or promoting partnerships with medical industries.
International public investment in inclusive and sustainable industrialisation should aim to support small and medium enterprises – including building their trade capacities, which tend to be the backbone of developing and industrialised economies alike. It should contribute to localising or integrating value chains to provide equitable distribution of added value, boost income generation, increase purchasing power and strengthen the domestic tax base.
Finally, public investment should provide incentives for the formalisation of jobs and the development of entrepreneurial skills, particularly for women.
In my view, the objective of ODA-based international public investment should be to strengthen institutional infrastructure at all levels so as to enable economies to flourish, acting as a catalyst for further responsible, sustainable investment into key industrial sectors.
Such a structured approach to international public investment can ultimately raise the trillions we require for implementing the SDGs and for shaping the next era of globalisation.
There are already some success stories to be shared. For example, in 2014 the government of Ethiopia and the United Nations Industrial Development Organization (UNIDO) launched an initiative aimed at achieving higher levels of inclusive and sustainable industrial development by attracting public and private investment around a government-owned industrial strategy. The Programme for Country Partnership (PCP), as this successful model is called, is founded on several essential elements: policy alignment, focused investment, technical co-operation and an inclusive approach to ensure ownership.
After only two years, the programme is yielding impressive results, including the set-up of national structures for PCP governance and monitoring, completed feasibility studies for integrated agro-industrial parks, and mobilisation of several investors for infrastructure development. Major private investments have been made in industries that are key to Ethiopian competitiveness, such as agro-food processing, textiles and apparel, and leather and leather products. Examples include the establishment of an environmentally friendly leather industrial zone in the country and the mobilisation of soft loan programmes for agro-food industrial and rural infrastructure.
A similar programme between UNIDO and Senegal, launched at the same time, also offers a promising outlook. Among other successes, the PCP Senegal has developed an incentive package and business plan for the country’s first integrated industrial platform. The first garment factory is expected to start operations in March 2016. Also in 2016, the PCP model is being expanded to Peru, demonstrating its applicability and effectiveness in middle-income countries as well.
Examples like these show that we are taking steps in the right direction. Legitimate profit interests are aligning with sustainability aspirations at many levels. But innovative approaches are required to systematise and scale up these initiatives.
This article is one in a series of opinion pieces written by prominent authors on issues covered in the OECD Development Co-operation Report 2016: The Sustainable Development Goals as Business Opportunities.