1 Contribution from resource persons from the south

The Policy Coherence Commission has asked four prominent development researchers with a basis in developing countries to share with the Commission their points of view on and experiences in formulating policies in all relevant areas that are important for creating positive social and economic development in the global south.

A big thank you is extended to the following for their contributions, which are given below:

Elizabeth Eilor, Executive Director of African Women’s Economic Policy Network, Uganda.

Sony Kapoor, Head of The Development Environment & Finance Exchange (DEFINE), Oslo.

Pamela Mbabazi, Dean, Faculty of Development Studies, Mbarara University of Science and Technology, Uganda.

Yash Tandon, Executive Director, The South Centre, Geneva.

1.1 Elizabeth Eilor: Coherence. Its Relevance and significance from the African women’s perspective

By: Elizabeth Eilor

Executive Director

African Women’s Economic Policy Network (AWPN)

On behalf of the entire African Women’s Policy Network membership I would like to thank you very much for this opportunity to share our thoughts with the Committee. Over the years, the African Women’s Policy Network has benefited hugely from the support of the Norwegian civil society groups, and we are grateful for this opportunity to highlight the important steps to bring about a whole-of-government approach to the fight against poverty and injustice.

The African Women’s Policy Network is a continental civil society organization, with a membership of over 150 women’s organizations in Africa – for whom poverty eradication is a prime goal. Ours is a passionate and committed constituency. A constituency that can give shape to the Governments’ commitment to make the fight against poverty a central plank of Norway’s foreign policy, in relation to Africa.

This paper discusses the issue of coherence from a gender and development perspective. It benefits from my work as a policy and gender analyst working in Africa. It echoes the voices of the African women, whose concerns have most often not been seen as a critical path to the development policies perused in Africa.

First and foremost, in a globalized world it is increasingly difficult to trace the origins of Economic policies. Policy makers at national level claim that their decisions are influenced by global developments and by pressures from international bodies such as the World Trade Organization and the International Financial Institutions. Representatives of these institutions in turn argue that their decisions solely reflect the will of the member states of these organizations and hence point to the responsibility of the respective Governments and parliaments. What looks like a typical blame game can also be called – using the language of the present. Macroeconomic policies and policy coherence need to be developed according to principles and frameworks that uphold people-centered development, human rights and social justice. They must guide economic decisions and actions that benefit all, particularly the most vulnerable groups (Ashoff 2002; UNIFEM et al 2004: 381; ICFTU 2004).

Coherence is a complicated and multi-faceted term used, and arguably misused, in a range of contexts. However, I do not intend to repeated this discussion here. For the present purposes, however, coherence is not just a matter of whether policies that might conflict or cancel out one another are adequately aligned to meet set objectives – it is also about how international cooperation fosters efficiency and national welfare by allowing Governments to meet policy objectives that might otherwise elude them. So far as the notion of international cooperation is concerned, this is also a term open to divergent interpretations. Cooperation can be more or less explicit and more or less binding.

However, the emerging coordination of macroeconomic policies, principally trade and financial policies is currently dominated by the multilateral trade and financial institutions, namely the World Trade Organization, the International Monetary Fund and the World Bank instead of the UN-led follow-up mechanisms. As far as its direction and nature are concerned, the concept of policy coherence is incongruent with internationally agreed commitments, particularly with the Beijing Platform for Action and the MDGs. This state of affairs can further limit the sovereignty of Governments in formulating and implementing domestic policies and strategies of their own that would put people at the center of the development process.

1.2 Sony Kapoor: Taking another view – Some recommendations for Coherence

Sony Kapoor

sony.kapoor@definesolutions.org

Aug 2008

International Finance, Environment & Development Consultant (India, UK, Norway)

Sony Kapoor is an international finance, development and environment expert who is in the process of setting up a new international think tank DEFINE – The Development, Environment & Finance Exchange. Sony has a background in Investment Banking and International Development and has worked with many inter-governmental organizations, private sector institutions, Governments and civil society organizations all over the world.

The Government Pension Fund-Global Background

The GPF is now worth close to $400 billion – the recent unexpectedly high price of oil has generated an excess windfall of as much as $100 billion. The two main sources of money flowing into the fund are

• Return on existing investments

• Revenues from sale of oil and gas

The future size of the GPF thus remains vulnerable to two major risk factors

• Low or negative returns on investments which are more likely if the financial system is unstable and corporate governance is bad (both of which are associated with a lack of transparency in international financial flows and corporate structures)

• A sharp fall in the price of oil or the demand for oil. This could happen

  • if a breakthrough clean technology is found or

  • there is global slowdown triggered by the current (or another future) financial crisis or

  • in the (unlikely) event of a strict global agreement on preventing climate change which severely limits the use of carbon dioxide emitting fuels

These risks need to be reduced and profits should be maximized. At the same time, as discussed above, it would be imprudent for Norway not to pursue goals such as tackling climate change and promoting development. This leads to a set of five possible goals which need to be kept in mind while managing GPF resources. These are

• Maximising profit

• Reducing risks

• Tackling climate change (if consistent with the above two goals)

• Promoting development (if consistent with the top two goals)

• Improve governance (if consistent with the top two goals)

Below are some nascent ideas on how to meet these goals

• I am aware of how difficult it is to achieve political consensus around how to use the GPF money so I suggest that in order to incorporate the last three additional goals, Norway can leave the main GPF fund untouched and apply the additional goals only to the Windfall portion of the fund to begin with. This should still be worth USD 50 – 100 billion. This portion of the fund should use a dual screening criteria – invest where both profitability as well as one of the other public policy goals listed above are met.

• Our economy and the GPF global are too dependent on oil and oil related technologies so there is an urgent need for diversification away from the oil and gas sector in order to reduce our risk.

• Besides divesting from oil and gas related investments, this should include making targeted investments into the development of clean energy technologies. This should include some venture capital type investments where the downside is known and limited and the upside unknown but potentially very high.

• In recent years, growth has shifted to the emerging markets. India and China, for example, have been growing at 8 %-10 % and direct investments in sub Saharan Africa have been generating annual returns of 25 %-35 %. Dedicating a significant chunk of the windfall fund to the emerging and developing markets has the potential to

  • Generate additional profitability

  • Diversify our overexposure to structurally similar OECD economies

  • Trigger positive development outcomes

• It is also of course possible to combine all these goals – for example by investing in the development of clean energy and other environmentally friendly technology parks in frontier developing economies with a equity sharing arrangements with the host country.

• It is imperative for the GPF to use its weight to help increase the transparency of international financial flows and improve financial and corporate governance. This will reduce the over all riskiness and volatility of the financial system from which both Norway and developing countries will benefit.

Moving beyond the ESG criteria

The ethical guidelines followed by the GPF are no doubt very important and send a clear signal. However, the ethical aspects of GPF investments can be approached from another perspective. This is presented below

Let us approach the question of ethics from the perspective of acting to make progress on three important aspects of the world around us – development, environment and governance. These represent some of the key challenges confronting the world today and also reflect the will of the Norwegian people (to whom the pension fund belongs) who strongly believe in

• Increasing development

• Tackling climate change

• Good governance and the rule of law

In fact, most policy makers would agree that the pursuit of these goals is further along the ethical spectrum than the current implementation of the ethical guidelines for the GPF investments.

The development of poor and emerging economies has the potential not just to improve the lives of hundreds of millions of people around the world but also save millions of lives which would otherwise be lost to hunger, disease and want. If the Pension fund could make even a small contribution to that – what could be more ethical?

Global warming is upon us with a vengeance. Other forms of environmental destruction and degradation are also catching up with our unsustainable lifestyles and at the rate at which things are getting worse saving money for our future generations might become increasingly futile as we will not leave them an inhabitable planet. If the Pension fund make a small contribution towards delaying doom or better somehow banishing it altogether – what could be more ethical than that?

The use of secretive jurisdictions, shell companies, trade mis-pricing, accounting shenanigans, payment of bribes and evasion of taxes damages the integrity of the financial system, increases the risks of financial crisis, makes corporations more susceptible to legal risks and reputation damage and undermines the rule of law. If the pension fund can even make a small dent in improving the governance of the system or of individual corporations it will have made a significant contribution to ethics as well as reduced the risks of the financial system to which it is heavily exposed.

I strongly believe that an active pursuit of these goals also has a large potential to

• Increase profitability

• Reduce risk through higher diversification

• Reduce risk through reducing the likelihood of financial meltdowns

Foreign Direct Investment – Enabling Development? Background

It is often highlighted that FDI can bring about positive development outcomes. This is indeed true, but with the caveat that this is not a foregone conclusion but can only happen under certain conditions.

Unfortunately, the caveat is often ignored and it is not unusual to see FDI represented as development finance pure and simple. It is this mischaracterization, which has been actively promoted by several major development actors who should know better, that has been partly responsible for developing countries trying to outdo each other in trying to maximise the volume of investments they attract.

This is at least partly responsible for the race to the bottom we sometimes see in

• tax concessions,

• labour,

• environmental

• and social standards

However, it is clear that all FDI and private capital flows do not contribute to financing for development or indeed development. Private capital flows are for profit transfers not gratuitous flows. This means that for the most part for every $100 million invested, $150 million (or more) would be taken out, perhaps over a period of a few years.

So over the medium term, the channel of private investment will turn from positive (when new investment comes in) to negative (when profits are taken out) and will not generate net positive financial flows. This has been observed over recent decades where the profits on existing investment in Sub Saharan Africa, for example, have in most years exceeded new investments coming in.

Portfolio investments, which are short term in nature, can generate additional problems of financial instability of the kind seen in recent emerging market crisis when this ‘hot money investments’ reversed sharply over a period not of months but days.

Even when money comes in and stays in, tax competition plus an ever growing use of trade, transfer and financial mis-pricing for tax evasion/avoidance by MNCs means that less and less of the money adds to domestic resources (tax revenues) which are critical for investments in health, education and development sectors.

Potential benefits of FDI

The main potential benefits of private investment lie then not in the money it brings in but in its indirect spill-overs. FDI has the potential to generate development benefits by bringing in

• new technologies

• managerial know how which can help upgrade local skills

• better social, environmental, gender equality and labour standards

• by creating decent work, well paid jobs

• through inter-linkages with the local economy

• and by paying taxes and royalties which the Government can then use to finance development

For the most part, this has not happened

Much FDI, in the extractive sector in particular,, does not generate many jobs, has little integration with the local economy, has limited technology spill-over and a potentially serious negative impact on the environment in particular. In addition, it has been observed that tax and royalty payments in the developing world are a fraction of what the equivalent amounts in the developed world are.

Pressure applied on developing countries though the WTO, IFI conditionality, investments treaties and regimes has meant that most performance requirements, where host Governments had the ability to make policy so as to maximise the development impact of FDI, are no longer allowed. The stringent intellectual rights regime, for example, has seriously harmed the ability of developing countries to use technology effectively.

Developing Countries are losing the regulatory power to require private investors to

• transfer technology

• hire and train local managers

• operate through joint ventures

• meet social, environmental, labour and gender standards

• use local content

• or meet export quotas etc

It was exactly by using policies such as these that countries all the way from the United States to Japan and Finland and Norway to Korea were able to harness private capital and private know-how to maximise development. These successful policies are now not available to developing countries – another symptom of their shrinking overall policy space.

It is essential to address these problems if developing countries are to benefit from the development potential of foreign direct investment.

To add to the problems, this limitation of spill-over effects is accompanied by a continuing and sometimes increasing attempt by a number of MNCs to aggressively minimise tax and royalty payments both through tough negation tactics and the use of dubious practices such as transfer mis-pricing of goods and services. Many of the mechanisms used rely on the use of tax havens or non transparent corporate vehicles.

International actors such as UNCTAD have recognized this. There is a backlash against the direction FDI has taken in many countries such as Bolivia and Tanzania as their citizens and Governments realize that they are not getting a good development deal especially from investments in the extractive sector.

This has been part of the reason why, for example, countries from Africa to Latin America have, for example, started to renegotiate revenue sharing arrangements and tax regimes especially in the oil and gas sector.

Moving to transparency, enhanced responsibility and a competitive niche

Under such circumstances of suspicions of MNC motives and practices and the continuing lack of transparency in international financial flows, any move in the direction of enhanced corporate responsibility and increasing the transparency of international finance can both

• earn the trust of developing countries

• and improve the development outcomes of FDI

That is why Norway’s efforts at increasing transparency in international financial flows (which is in consonance with Norway’s interests as highlighted in a previous section) is critical

In addition, Norway can ensure that when Norwegian (Government and private) firms invest abroad in developing countries, they meet higher standards on technology transfer, tax and royalty payments, generating inter-linkages with the local economy, labour and environmental issues and the training of local staff.

While on surface such requirements may appear to put Norway at a competitive disadvantage, I believe that the truth is quite the opposite. In the changing paradigm where the benefits of FDI are being questioned and challenged, such actions can help Norwegian firms build a niche for ‘more development friendly investments’ which could potentially be a big advantage in getting access to the developing world. That is also where higher rates of return reside.

Facilitating Domestic Resource Mobilization Background

Domestic resource mobilization, which refers to a country mobilizing resources in house is the corner stone of any country’s ability to achieve sustainable development. These resources are usually mobilized in one of three ways

• Through taxes – direct such as the income tax and indirect such as import tariffs

• Through royalties – mostly in the extractive sector

• Through domestic borrowing

Of these the first two are the most important as the borrowed money needs to be paid off and is not a new source of revenue. Thus taxation lies at the heart of the development process.

However, lack of transparency in international financial flows combined with the increased liberalization of trade and investments has resulted in a tremendous increase in the scope of capital and tax leakages. These losses are accentuated by the absence of effective international co-operation on tax.

The biggest channels for income and profit shifting by individuals and corporations are

• the mis-pricing of trade transactions in goods and especially in services.

• The mis-pricing of Intra corporate transactions between subsidiaries of MNCs, also called transfer mis-pricing

• The manipulation of cross border financial transactions such as loans, royalty payments is also a very serious problem as is mis-represented bank transfers of the kind which resulted in almost $70 billion going missing from the Russian central bank in the 1990s

The failure of Governments to exchange information on cross-border transactions especially as it relates to taxation allows, in fact encourages both domestic and international actors to engage in hundreds of billions of dollars of capital flight and cross-border tax evasion and tax avoidance.

While this is a serious problem for both developing and developed countries, lower administrative capacity means that these leakages are more serious for developing countries – where their effect of depressing tax revenues – and hence financing for development – makes a difference between life and death.

Moreover, capital flight and cross-border tax evasion are more pernicious than domestic tax evasion because the money and resources mostly leave the country permanently and hence do not even generate a positive multiplier effect in the economy.

The seriousness of these problems which are encouraged by the lack of international tax co-operation especially from developed country financial centres – results in an annual loss of at least $500 billion from developing countries in the form of capital flight and more than $100 billion of tax losses.

The race to the bottom on tax rates and on offering tax holidays and similar incentives to try attract investments is hampering developing countries accruing a fair share of their natural resource wealth.

Moreover this lack of transparency also contributes to higher levels of corruption and bribery at the same time as adding to the risk of financial instability both of which further undermine the interests of developing countries (and Norway).

All of these disturbing phenomenon which are severely hampering developing country efforts to mobilize resources domestically flourish due to

• the absence of transparency in cross-border financial flows

• the lack of effective exchange of information especially from developed countries

• the lack of a discussion and even awareness of the magnitude of these negative flows

Estimates show that developing countries have cumulatively lost as much as 4 – 5 trillion dollars through these channels and that much of this money is still illicitly stashed in financial centres. The 5 – 10 % of GDP of annual capital flight from countries such as South Africa and Cote d Ivorie must be stopped and tax leaks be plugged to create an international environment which allows developing countries to mobilize resources domestically.

Domestic Resource Mobilization can only happen in the context of Domestic Resource Retention

Additionally, the trillions of dollars which have already leaked out rightfully belong to developing countries and their peoples and must be brought back to help finance their development plans. While token efforts have now been made at recovering stolen assets under the UNCAC, these are far too narrow and we need a much more ambitious program of the identification and repatriation of these assets to the developing country of origin. These trillions of dollars are rightfully domestic resources so must be returned.

Effective Domestic resource mobilization, domestic resource retention and domestic resource recovery all go hand in hand and are the only way to achieve sustainable development.

The Illicit Finance Task Force and associated actions

That is why the work of the illicit finance task force led by Norway is so important and needs to be scaled up into a more ambitious international program.

The task force has the potential to

• raise the profile of a critical but underemphasized development issue

• built linkages between the interests of developing and developed countries (including Norway) which lose revenue to cross border capital flight

• emphasise the actions needed to enhance the transparency of international financial flows which will help

  • plug the leaks and facilitate domestic resource retention by developing countries

  • reduce tax flight from developed economies

  • reduce corruption by diminishing the opportunities for corrupt money to hide

  • tackle crime by exposing related financial flows

  • reduce financial instability by giving regulators a more complete picture of what is going on in the world of finance

1.3 Pamela K. Mbabazi: Contribution to the Coherence Policy Debate from a Ugandan Perspective

By: Pamela K. Mbabzi

Dean

Faculty of Development Studies

Mbarara University of Science and Technology, Uganda

Uganda is a small, poor and donor dependent open economy. It is driven by a nascent and fragile private sector. The public sector is largely inefficient, the financial system is shallow and fragile, the tax base is very narrow, the payments and settlement systems among others are inefficient, in short there is a pervasive market failure. In addition, consumer protection is largely absent, law and contract enforcement is weak and appropriate regulation among others is lacking.

Africa in general and Uganda in particular needs peace, good governance, fair-trade relations that are conducive to development, market access that is as free as possible for its products, sustainable investment, sustainable use of energy resources and work and jobs for its people in order to experience sustainable economic and social growth. This can only be achieved through a long-term strong all-embracing partnership with its development partners especially Norway. A joint Uganda-Norway strategy in dealing with some of the above could be the answer to this.

If Development Cooperation is to contribute to the elimination of poverty, then it must include policies that will promote the structural transformation of developing countries so that they produce more value-added goods and relatively fewer basic commodities, among other things. Northern Countries including Norway need to fully understand the production and trade challenges facing African countries and collaboratively design policies that will mitigate these and ultimately promote poverty alleviation.

In my view, one of the major setbacks holding back the progress of developing nations is shortage of skilled manpower around which many of the other factors revolve. Even if the best policies are devised, nothing will come to bare as long as the personnel to implement these policies are not there or in short supply. Developing countries need more money to create and maintain a skilled workforce.

On the one hand, Universities have been neglected and not enough quality research and generation of knowledge is going on in the higher institutions of learning. As a result the quality of the human resource being produced on the continent leaves a lot to be desired. Even more problematic is the fact that salaries especially for most civil servants are terribly low across most countries in Africa. If African countries are not able to pay adequate salaries to their professionals, the brain drain caused by qualified people emigrating will perpetuate hardship and poverty irrespective of the kinds of policies put in place. The situation is being exacerbated by population growth. Uganda’s fertility figures for instance stand at 7.3 which is way above the continental average. Most qualified people of late, have tended to move abroad to take up better paid positions. Norway’s development policies and strategies therefore need to be directed towards helping to resolve this problem. One of the major weaknesses in past donor policies have been that not enough money is allocated to pay skilled local workers.

Development cooperation is most effective when the recipient countries decide for themselves how to use the funds they receive. Consequently, there is much to be said for the idea of providing official development assistance (ODA) in the form of general and sectoral budget support, so as to encourage the successful implementation of national poverty reduction strategies.

Uganda has already seen some positive results where basic health and education services have been expanded by direct support to the national budget rather than having assistance tied to specific projects or budgetary items. Donors including the Norwegian Government should grant budget support of this kind for longer periods of time than they have in the past.

The Issue of HIV/AIDS is also still a very urgent one on the continent and must be included in the priority action areas. Norway’s policies should be directed towards meeting new challenges in the fight against AIDS and in particular towards protecting women who are falling victim to the pandemic in increasing numbers still, especially in Southern Africa.

Trade policy needs to be used in a more focused way to serve the interests of effective poverty reduction and sustainable economic development. Norway should use its unique position and stature in Europe to push harder for favorable terms of trade for African Countries. There is need to protect the highly sensitive sectors in African Countries that are highly relevant for development.

In order to gradually develop coherent policies with the developing world, more intensive exchange of information is needed to ensure better planning and coordination.

The OECD defines Policy coherence as the systematic promotion of mutually reinforcing policy actions across Government departments and agencies creating synergies towards achieving agreed objectives 1. This essentially means that OECD member states in pursuing domestic policy objectives in areas such as trade, agriculture, the environment or migration, should aim at avoiding negative consequences which would adversely affect the development prospects of poor countries. In reality however, the reverse is true. Many EU countries for example, provide development aid under the guise of improving the ability of African countries to engage in trade while at the same time maintain trade barriers that keep the developing country’s goods out. There is greater need for development coherence in OECD Governments’ policy stances to enable the benefits of globalization to be more equitably distributed and shared.

The policy coherence argument tries to advocate for taking into consideration the interests of developing countries in policy making. However, as many critiques have noted, Coherence has always been and will continue to be a function of competing and conflicting interests and values. Unless Donor countries become more ethical and realise that they cannot continue building their progress on the retrogression of other countries, policy coherence will take long to become a reality.

Yet, the need for action in promoting policy coherence is more urgent today than ever before, especially given the increasing challenges of the widening gap between the rich and poor which is becoming politically unacceptable. There is need to urgently create the global partnership for development called for in MDG8. The responsibility for policy coherence cannot only fall on developing countries but has to be done in partnership. Among other things, pressure needs to be put on securing market access for those goods and services in which developing countries have a comparative advantage and where the greatest gains can be realised. Norway needs to seize all opportunities to influence and improve policies impacting developing countries whenever possible.

Some of the key areas to focus on for policy coherence include but are not restricted to the following:

1. Agriculture: For developing countries, agriculture is a major source of income and potential poverty alleviation. Norway needs to among other things, support more research in the developing world to understand how trade liberalisation can make the primary producers winners and not losers. There is need to understand better the barriers along most of the commodity chains especially for products in which developing countries have a comparative advantage, like cotton, rice and sugar, and which are among the most protected products in developed markets. Deeper understanding is also required of the implications of policy reforms on different groups of countries, be it through preferential trading arrangements or multilateral liberalisation efforts. Food aid, export support, and anti-dumping actions require in-depth empirical research by both local and foreign researchers in partnership.

   Trade policy: High tariffs and tariff escalation persist for goods like textiles, clothing, footwear, and some processed products, which are deemed sensitive in OECD countries and in which developing countries have a comparative advantage. Non-tariff barriers impose significant costs on developing countries, yet factual information about their magnitude and economic costs is scarce, preventing pro-active multilateral rule setting and remedial action by developing countries and donors. More needs to be known about the effects of anti-dumping provisions applied as a protective measure for domestic industries.

2. Promoting Investment, Knowledge and technology transfer: Access to products of the knowledge-based economy, as well as effective transfer of technologies and information, are key determinants for growth in developing as well as developed countries. More coherent policies to promote this are needed.

There is, undoubtedly, an urgent need to harmonize global policies which can strengthen the capacity of Developing Countries to among other things, provide a conducive environment for the rejuvenation of their economies and slowly bring about progress. This calls for not just policy coherence but perhaps also policy integration.

Selected References:

• Improving Policy Coherence for Sustainable Development: A Checklist, available at: www.oecd.org/publications/Pol_brief

• The Development Dimension or Disillusion? Nordiska Africaninstitutet, Policy Notes, October 2007

1.4 Yash Tandon: The Issue of Coherence: its Relevance and Significance from the Perspective of the South

By:

Yash Tandon

Executive Director,

South Centre

31 May 2008

This brief report is in response to the request made by the Chairman of the Norwegian Government’s Committee on Coherence in Development Policy in his letter of 24 April 2008, for advice «on which policy areas that are most crucial from your point of view and on what Norway should prioritize politically in national and international policy arenas.»

There are in my view three immediate priority areas that the Committee might consider: Aid, Trade and Investments. There is the issue of climate change, but that is a slightly longer term issue. There are also other policy areas that can give rise to development incoherence such as political/security issues being reflected in multilateral/bilateral relations, and multilateral governance architectural issues, or incoherence arising out of special foreign policy interests of Norway. However, given the nature of the brief I will focus on the above three areas that, in my view, are of immediate and urgent importance.

Before I come to these, I would like to point out that my perspective is different from OECD’s definition of «coherence» which the Committee takes as the basis of its work. It is, as quoted to me in the above letter:

«A coherent policy for development will ensure that the development policy goals are not undermined by Government policy in other areas and that these other policy areas support development goals whenever possible.»

The above definition deals only with one aspect of coherence/incoherence. The challenge of trying to achieve «coherence» is often understood as arising out of different goals and objectives pursued by different Government Departments internally within donor countries. For example, the Defense Department may have very different objectives from the Trade or Development Department of Government. That may well be the case.

This report focuses, rather, on how incoherence arises at the receiving end of donor policies on aid, trade, and investments.

From my long experience working in Africa, and from working over the last three years as the Executive Director of the South Centre in the context of negotiations in the World Trade Organisation (WTO), the World Intellectual Property Organisation (WIPO), the UNCTAD, the World Health Organisation (WHO), the International Labour Organisation (ILO), among other IGOs based in Geneva, and the European Union in Brussels and the OEDC in Paris, I would say that there are really two sources of incoherence in the developed industrialized countries’ attempts to address issues of development and poverty in the countries of the South.

1. Incoherence arising out of conceptual (mis)understanding of development; and

2. Incoherence arising out of practice at variance with stated «development» policy objectives and means to development set out by OECD countries.

The second problem I will illustrate with reference to the three areas of aid, trade, and investments. But the first is a more serious problem than the second. It arises out of the misconception that «development» in the South should follow the same route and adopt the same institutions of governance that the North used in its own development path; that the North has the «responsibility» for the development of the south; and that following from this the «right» to intervene in the affairs of the south on matters related, especially to setting norms and their application, among others, to human rights, health standards, child welfare, the building of democratic institutions of governance, and so on. Some of these are indeed internationally agreed responsibilities and normsto which countries of both the North and the South have subscribed (for example, the common but differentiated responsibility on climate change). But often during the process of negotiations on these norms and their application, countries in the South (especially aid-dependent weaker ones in Africa and the LDCs) are compelled to accept the interpretation and application of these by the North.

Such forced (real or perceived) interpretations and applications of norms on the part of the North, might well «be paved with good intentions», but they often backfire, and produce quite opposite results from those intended. The industrialized countries are then frustrated at the results (e.g. in Darfur, Iran, Zimbabwe, Myanmar, Korea, etc), and often wonder why, for example, China would not put pressure on Governments in Myanmar or in the Sudan (in the way that the North desires), or South Africa in Zimbabwe (again in the way the North desires). Frustration also arises because North cannot measure the South’s development by standards set by the North. These frustrations of the North are understandable, especially in the case of those countries in the North (and here I would single out the «non-imperialist» Nordic countries) who put much effort and goodwill into creating a «better world». Unfortunately, it is so very difficult for the North to fully appreciate that it is not their responsibility to develop the South, and that the countries of the South are all at different level and pace of development and they must each follow their own path to development, no matter how much time and pain it takes.

Let me come now to the three areas.

1. Aid

On matters related to aid, the lessons of the past may have finally dawned on the OECD. It has addressed some of the issues in its so-called «Paris Declaration» on «Aid Effectiveness» (PDAE). Implicitly the PDAE recognises that the present global architecture of «development cooperation», dominated as it is by the World Bank, the IMF, the Paris Consortium and the donors, suffers from democratic deficiency. It sets out, in my view, reasonably sensible principles on aid effectiveness -- namely, ownership, alignment, harmonisation, managing for results, and mutual accountability. By mid-December 2007, 115 countries are listed in the OECD website as having endorsed the declaration.

The difficulty arises in the process by which the PDAE is being shepherded by the OECD, poor understanding of power and linkages to self serving policies and interests, and in the practical application of these principles. I have studied this matter carefully, and have several papers on the subject (attached is a brief summary comparison of PDAE and SCAE – which stands for South Centre Aid Exit strategy). For the purpose of this brief, let me summarise a few critical problems with the PDAE.

First, the UN was initially excluded from the system and then, belatedly, brought in, through the Development Cooperation Forum (DCF) of the UN to give it credibility. The UN was not involved in it from the start and lacks any leverage to promote its priorities into the PDAE. For example, the ILO’s internationally recognised concept of «decent work» does not appear as one of the objectives in aid evaluation. Also many of the MDG related objectives do not feature into the performance criteria, especially MDG 8 that deals with North-South relations.

Second: the performance conditionalities are prepared by donors in conjunction with the World Bank. There is no real mutual accountability. For example, if the «recipient» countries do not perform, they are subject to penalties in the form of reductions or withholding of aid disbursements as well as tighter conditionalities. However, if the «donor» countries do not perform, or worse, mis-perform in the sense of implementing policies that may actually undermine the development or policy space of aid recipients, there are no penalties.

Third: thecompliance tests are administered by the Word Bank (on for example procurement) that do not use the economic and social policies of the «recipient» countries. These are externally imposed tests based on World Bank-devised procurement assessment methodology focused, essentially, on ensuring that foreign firms can compete with domestic firms for Government contracts.

The OECD hopes to get the PDAE endorsed by a High Level Ministerial conference in September 2008 in Accra, under the so-called Accra Action Agenda (Triple A). And indeed, because of the «aid dependence» of many countries in Africa (especially when the matter is being discussed in an African city), the OECD may well get the endorsement it is seeking.

But that, in my view, would be short-sighted. The effort, especially to bring the IMF and the World Bank through the back door, will backfire. I fear that over time, when African countries realise what is happening, there would be a strong reaction. (I would be happy to send you more documents on this issue).

2. Trade

For lack of space, I would refer you simply to the recent Report by Jan Ziegler, the UN Special Rapporteur on Right to Food (A/HRC/7/5). Many of his observations and conclusions reflect our own findings at the South Centre. But since he is part of the UN system, it is better to quote him. Among other very important findings, he points out that Western subsidized food dumped in African market and subsidized US maize under NAFTA has displaced 15 million Mexican farmers. He also says that his two missions to Niger showed that the market-based paradigm of development, largely imposed by the IMF and the World Bank, has been harmful to food security for the most vulnerable. Cost-recovery policies in health centres, for instance, mean that many poor children are not being treated for malnutrition. The privatization of Government support services, including the logistics and food distribution system (OPVN) and the National Veterinary Office has exacerbated food insecurity amongst small-scale farmers and pastoralists.

He points to what he calls «schizophrenia» in the United Nations system and in States’ policies, as well as the increasing control of vast sectors of the world economy by transnational corporations. He says that the policies and practices of agencies such as the IMF, and the World Bank, along with the US Government and the WTO, undermine peoples’ right to food through imposing on the most vulnerable States the «Washington Consensus» emphasizing liberalization, deregulation, privatization and the compression of State domestic budgets, a model which in many cases produces greater inequalities.

He argues that while states have recognized the right to food in the World Food Summit Declarations and more than 150 States are parties to the International Covenant on Economic, Social and Cultural Rights (ICESCR), at the same time, they engage in trade policies that are detrimental to the enjoyment of human rights in other countries.

I could have elaborated on these from my own practical experience in Africa.

There is, however, one issue to which I must draw your attention. Although Norway is not a member of the EU, but since Norway does operate in the European context, I might add that the Economic Partnership Agreements (EPAs) currently being negotiated between the EU and the African, Caribbean and Pacific (ACP) countries would, if signed in June this year (as it seems), would (and I choose might word carefully) undermine development of the ACP countries. The latter are caught up in a situation in which the European Commission has led them to believe that they have no options but to sign on the dotted lines. Our study in the South Centre shows that the countries do have real options, but these countries are under pressure to sign.

Investments

On 7 April this year I was invited by Honorable Agot Valle, MP, to address a Parliamentary workshop on Norway’s Draft Model Bilateral Investment Treaty (BIT), and to make some comments on it. I had then suggested that the Draft Model, in my view, should be scrutinized very carefully before it is passed by the Norwegian parliament. I was informed that the context of the BIT was the need to maintain Norwegian (and EFTA) industrial and commercial competitiveness in relation to what the EU receives or perceived to receive from the developing countries. If this is so, then this should be clearly stated, and understood as part of Norway’s commercial policy and must not be «marketed» as its «development» policy. From a developmental perspective, the BIT will have serious negative consequences for countries in the South that would sign the Norwegian BIT.

I am aware that the UNCTAD also commented on the Norwegian Model BIT, and among other things has suggested it has gone beyond TRIMS. We at the South Centre, taking a specifically southern perspective, made our own analysis and this is the conclusion we have reached:

«The Norwegian Model BIT may have the potential to diminish the development policy space of developing countries that might wish to sign the BIT with Norway.

It reflects the standard BIT objectives of promoting and protecting investments overseas. Should Norway agree on a BIT with a developing country, the potential is high that what would be promoted and protected effectively would be Norwegian investments into the developing country rather than vice-versa as a result of the greater investment capacity and economic strength of Norwegian companies as compared to their developing country counterparts.

The model BIT, unless substantially changed, could have the effect of locking in Norway’s developing country treaty partners into a relationship of economic inequality and dependence – akin to a new form of colonialism – vis-à-vis Norway, as the BIT’s provisions could prevent the developing country partners from engaging in more active industrial development policy that might require at various stages certain levels of discriminatory treatment against foreign investors in order to develop and to create more competitive domestic industries.

Furthermore, it envisions an architecture that establishes equal levels of treaty obligations on both Norway and its developing country partners. There is no provision at all in the model BIT that provides for special and differential treatment for the developing country partner in terms of the level or extent of obligations to investors and investments, thereby disregarding the fact that the economic development status of many developing countries may make it more difficult for them to comply with the BIT’s obligations.»

In conclusion, allow me to emphasise three points:

1. If Norway provides aid and engages in trade and investments in the South for its own commercial or foreign policy or strategic reasons, then this is perfectly well understood, and it should say so openly and transparently. But this should not be confused with «development assistance». It is more honest to call a spade a spade rather than a shovel.

2. Whilst recognising that there are indeed «common but differentiated» responsibilities countries have towards, for example, the protection of «global commons», including international conventions, it must be stated emphatically that development is nationally self-owned and self-determined. It is part of the «national project» of each country. Norwegian or any other country’s «development coherence» in relation to the South can only by assessed by the extent to which the South becomes more self-reliant in owning its development process.

3. The biggest support that the North can give to the South is to unconditionally help build the institutions of the South to «think for themselves» through supporting genuine knowledge-based and knowledge-creating bodies of the South that are not simply replicas of the think tanks of the North.