International Development Minister Erik Solheim

The role of the business sector in international development policy

Opening address at the business sector conference on development cooperation, Felix Conference Centre, Oslo, 14 February 2006

The state of the world anno 2006:

Poverty is increasing. And poverty is decreasing.

Contradictory – but true.

In Asia, a broad economic development process has lifted more people out of poverty than ever before. In many African countries, poverty increases from one day to the next. There are still around one billion people who are living on less than a dollar a day – most of them are in Africa.

Forty years ago, the situation was quite different. Ghana and South Korea were more or less equally rich – or equally poor. At the time, some so-called experts maintained that Ghana had the best prospects for economic development. Today, the per capita wealth of South Korea is more than ten times that of Ghana and the disparity continues to increase.

The sixty-four thousand dollar question is: How is it possible for countries in some parts of the world to stamp out poverty at a pace never seen before, while other countries sink more deeply into poverty?

The answer is probably not to be found in single factors but in the picture as a whole. The Asian countries that have experienced rapid economic growth in recent years have undergone a broad process over time, where relatively sensible policies, a reasonably well-functioning state, an open, market-based economy, and focus on education and cultural factors have combined to pave the way for progress and the eradication of poverty. China, Vietnam and South Korea are good examples.

It is the sum of these factors that lifts countries out of poverty. This is why Norway’s new coalition Government sees its international development policy and the efforts to fight poverty as part of a long-term process. This means that things must be seen in context.

For example, it is not acceptable to say that, because we provide a high level of development assistance, we do not need to open up our markets for products from developing countries. Neither is it acceptable to say the opposite: that opening up our home markets should be a justification for providing less development assistance.

What most of us regard as traditional development assistance will undoubtedly continue to be important for very many poor developing countries for many years to come. But unless we also pave the way for greater economic activity and value creation in these countries, it will not be possible to meet the overarching target of the UN Millennium Development Goals: to halve the number of people living in extreme poverty by 2015. We therefore have to keep two things in mind at once. Development can only take place where there is a well-functioning state and a well-functioning business sector. Neither is sufficient on its own.

I would like to underline here the importance of a strong, well-functioning state as the foundation for economic growth and development. The state plays a role both as regulator and as facilitator. If we look at the development in Asia, we see that it is this very factor that has attracted foreign investors. The will and ability of the authorities to create predictable and stable frame conditions has formed the basis for the economic growth many countries in this part of the world are enjoying.

Focus on business sector development

In its policy platform, the Government emphasises the fight against poverty and the right to economic development and participation in international trade. This means that the development of the business sector will be a high priority focus area for the Government in its international development cooperation. It is important that efforts are seen in this perspective.

The objective is to:

1. create value
2. create jobs that give people dignity, and enable them to feed their families and send their children to school
3. provide the basis for the distribution of wealth, building up public services and the further development of institutions and infrastructure
4. promote business development in an environmentally and socially sound way that also encourages women to play a key role in the economy
5. help to ensure that the natural resources in developing countries are managed in an environmentally sound and sustainable way.

The way I see it, there are two approaches that are vital:

1. increasing efforts to create frame conditions and infrastructure that promote economic growth and social development
2. stimulating more investment, the establishment of more new businesses and more trade in poor developing countries.

There is room for all here: public and private actors, official bilateral development assistance and multilateral cooperation, and the involvement of the business sector.

But it is not enough just to ask about the needs. The needs are enormous, not only in Africa, but also in large parts of Asia and Latin America. We also have to ask: In what area is Norway in a particularly strong position to make a difference?

Our efforts in relation to the debt issue and trade conditions for poor developing countries are important to secure the international frame conditions needed to increase trade and value creation in these countries. The Government wants to increase efforts to address disparities and unfairness in these areas. The Doha Round in the WTO must produce results that enable developing countries to benefit from international trade and a globalised world economy. We are also working to improve the international mechanisms for debt relief and we are considering further measures in connection with poor countries’ debts to Norway.

National frame conditions – focus on expertise that is in demand

At least as important are the national frame conditions for economic and social development. It is often internal factors that stick a spoke in the wheel for investment and value creation in poor countries. Both the World Bank and UNDP have established that reforms in the frame conditions will have a decisive effect on the development of entrepreneurism and business activity. They have also shown that even small low-cost measures can have a major effect on economic activity.

In our development cooperation, we therefore emphasise the importance of strengthening the institutional and macro-economic frame conditions in our partner countries in the South. Assistance to improve economic management, the judiciary and governance, and support to establish administration systems and measures for formalising property rights and developing a basic infrastructure are key elements. Our efforts will be channelled multilaterally, via the UN system and the World Bank, and bilaterally through our cooperation with individual countries.

Our bilateral efforts will particularly focus on areas where Norway has recognised and sought-after expertise, for example in the hydropower, petroleum, fishery, fish-farming and maritime sectors. We also have a high profile in environmental issues and have a strong focus on employees’ rights and the rights of women. We want to strengthen efforts in these areas, in terms of both developing the frame conditions and increasing cooperation with the business sector.

These are the areas that we will focus on most strongly. I believe that public efforts should be concentrated to achieve the greatest possible effect. And here I am inviting you all, Norwegian centres of excellence, NGOs and the business sector, to contribute in your different ways.

Efforts in the energy and petroleum sectors

The Government has already started making preparations to step up efforts within hydropower and other sustainable forms of energy, and to increase assistance for sustainable utilisation and responsible management of petroleum resources and petroleum incomes in developing countries.

Last year, the Ministry set up a working group to map Norwegian expertise and examine the possibilities of increasing efforts relating to the energy sector in developing countries. About a week ago, I received the working group’s report. It confirms that there is great deal of expertise in this area in Norway, and that it is in great demand in developing countries. The working group recommends, therefore, increasing and broadening Norwegian efforts in the development of the energy sector.

The working group’s proposals include:

1. the establishment of a first-line service to countries that wish to learn from Norwegian experience in the energy sector
2. support for project development on the partner country’s terms
3. support for the development of climate measures under the Clean Development Mechanism (CDM)
4. the establishment of energy-sector programmes in selected countries and emphasis on regional cooperation measures
5. active efforts to develop the local and regional contractor industry
6. strengthening the Norwegian network between the business sector, the authorities, research centres and other development assistance actors.

I think these proposals are very interesting in relation to both the emphasis on institutional cooperation and investments. We are currently drawing up a plan for the further follow-up. The money is there, so things should start to happen soon. A further intensification of efforts is planned in 2007.

It is important to increase the focus on renewable energy. I would particularly like to point out in this connection the considerable efforts made by NORFUND through SN Power, its joint venture with Statkraft. This is an example of how Norway contributes both capital and expertise to this area.

The working group’s proposals are along the same lines as the Oil for Development initiative we have developed. This establishes petroleum management and good governance as a high-priority focus area, and entails a significant increase in the financial support to this field over the development-assistance budget.

The intention behind Oil for Development is to enable petroleum-producing developing countries to utilise the income from oil and gas resources to reduce poverty and improve the living conditions of the population. Today many countries with rich resources are suffering from what is known as the “resource curse”. This is something we can change. We want Norway to play a clear and key role in the international debate on oil and development. On the basis of Norwegian expertise and experience, the globalisation of the Norwegian oil industry and the country’s existing involvement in resource management, development, peace and human rights, Norway is in a good position to play such a role. We have the impression that the participation of Norway in this field will be welcomed by many.

Our efforts include:

1. strengthening and increasing the efficiency of Norwegian bilateral assistance to countries that want to learn from Norwegian expertise and experience in the petroleum sector, through better coordination and organisation of technical and administrative resources in Norway.
2. greater focus on good governance of all aspects of petroleum management, including management of the environment, resources and income, and financial management
3. bilateral and multilateral cooperation with other actors who are involved in development assistance relating to the petroleum sector to ensure broad, coordinated and effective efforts.
4. stepping up Norway’s involvement with the Extractive Industries Transparency Initiative (EITI). This initiative seeks to make the flow of money between oil companies and host countries more transparent. Norway will host the next EITI plenary conference in the autumn. Our aim is to promote the development of the EITI standard from being just an important initiative to becoming a consolidated international norm.

In addition to the expertise and experience to be found in public bodies, it is also vital to draw on the experience and knowledge of the Norwegian oil industry, NGOs and the media. We have made good progress in the coordination between the authorities, and we are now ready to include Norwegian oil companies and NGOs in this effort. We want to draw in Norwegian and international NGOs with a view to strengthening the capacity of civil society in the countries with which we cooperate.

Instruments

The engagement of Norwegian companies in developing countries is positive and important. We need trade and investments, and the values and social views you bring with you. We expect Norwegian operations to be ethical and hope that the examples you are setting will be followed by others.

There is no doubt that these expectations can be challenging for Norwegian companies in some cases. We know that companies from a number of other countries are bringing with them a less ethical approach to their engagements in developing countries. The competitive situation can seem rather unbalanced at times, but this is not always the case.

It is my opinion that the ethical approach Norwegian companies take can in fact be a competitive advantage. Business ethics expertise is something that is in demand in such areas as petroleum management.

And in any case, a business policy that tolerates lower standards and poorer quality in other countries compared to operations at home will not be sustainable in the long-term. We cannot, and we should not lower our standards because others do. On the contrary.

I have been asked by the business sector, or more precisely the Confederation of Norwegian Enterprise, how the Norwegian authorities can help to even out these differences through the various instruments we have at our disposal. I am happy to take on this challenge, but it must be underlined that Norwegian companies cannot expect subsidies from the authorities in connection with engagements in developing countries. Such engagements must be based on the interests of the company in question and the contribution it can make. Unless they are in the company’s own interest, business operations in developing countries are unlikely to be successful. Also, there is then a danger of doing more damage than good to the country’s prospects for economic development.

However, this does not mean that we should not take a closer look at the instruments we have. We should constantly ask ourselves whether our instruments are good enough and whether they are keeping up with the constant change that is taking place in the world today. The Ministry has assessed the proposals that were put forward in the consultants’ report that was presented last year on instruments for business development in the South, and I would like to follow up several of these proposals.

I have already mentioned that we wish to strengthen efforts to improve the frame conditions and infrastructure for business development. There are several opportunities here for Norwegian companies and centres of excellence.

I have also decided that:

1. A new first-line service is to be established to provide information, advice and guidance for companies about the instruments available for business development. The Norwegian Agency for Development Cooperation (Norad) and the Norwegian Investment Fund for Developing Countries (NORFUND) have been asked to draw up the framework for this service together, and it should be possible for it to be established fairly soon. The need for a service of this kind was highlighted in both the consultants’ report and the subsequent discussion.

1. We will rationalise and streamline Norad’s global application-based schemes for business development, so that as far as possible they are recognisable as part of the same toolbox. The aim is to make the various schemes more accessible and more effective. Norad has already started making concrete plans for how this is to be done.

1. A new, “softer” loan window is to be established in NORFUND with greater acceptance of risk for direct investments in the least developed countries (LDCs). NORFUND is currently drawing up proposals for putting this window into operation. The new scheme will increase the opportunities NORFUND already has for providing loans and equity as a coinvestor in large or smaller business projects in the LDCs. I hope that this, together with the other measures I have mentioned, will lead to a stronger engagement of Norwegian companies in these countries. The new loan window will probably require a higher level of technical support and will probably therefore have budgetary consequences.

1. I will also start up work in the Ministry and the embassies to establish a programme for business development in one or more partner countries. Both the consultants’ report and several of the commenting bodies particularly highlight that the Strategy for Private Sector Development in the South should be followed up in this way. Setting up a private sector development programme in certain countries, where the various instruments are seen in relation to one another, will facilitate coordination of efforts to improve the frame conditions, and boost investments and business sector involvement. Here too, focus will be directed to areas where Norwegian expertise and business participation are requested by the partner country.

I would also like to highlight the role of the Norwegian Guarantee Institute for Export Credits (GIEK) in this connection. Although GIEK’s guarantee schemes are formally the responsibility of the previous speaker, the Minister of Trade and Industry, I too am very interested in solving problems within the framework of the guarantee scheme for developing countries. Without going further into details I believe, as Minister of International Development, that a solution that both the business sector and we can live with should be within reach.

Trade

The extensive international activity of Norwegian companies is not not only about establishing and running businesses in other countries, but also to a large extent about trade. Many Norwegian companies import agricultural products and various other industrial goods that originate from developing countries.

Trade is perhaps one of the most effective instruments in our efforts to create higher incomes and greater economic development. But trade does not come about by itself, particularly not in the poorest countries. It is important that more doors are opened to the rich countries’ markets. However this must also be followed up with assistance to develop products and the expertise needed to sell them on the international market. We are the developing countries’ most important source of export income.

We are therefore also supporting Norwegian importers and companies that are developing products and promoting exports from developing countries to Norway. Our agreements with the Federation of Norwegian Commercial and Service Enterprises, the Forum for Development Trade, the Ethical Trading Initiative and Max Havelaar are good examples of how we can cooperate with other actors in this area, both to promote increased imports from developing countries and to ensure that employees in developing countries benefit from the positive effects of this trade.

The import of roses from Uganda and meat from Namibia and Botswana are successful examples. These are small projects, but they are important for the people involved. The challenge is to achieve this on a broader front.

A challenge to the business sector

I would like to conclude here with a challenge to Norwegian companies. It is no longer sufficient to look to Sweden, Denmark and the rest of Europe when we are thinking in terms of internationalisation. Or to Asia, where developments are naturally catching the attention of many. We should also be looking in other directions.

The figures show that the attention of the international business sector is increasingly being drawn to another aspect of Africa that is developing behind the news of poverty and conflicts. There is currently an economic development underway in many African countries which, if the political and economic frame conditions at local and international level continue in the right direction, could be of great significance for the countries concerned and for the whole region. This applies in particular to certain countries in Central and Eastern Africa.

The increase in direct investments from abroad in many African countries is primarily in relation to investments in natural resources, especially petroleum. Many of these cases have both positive and negative consequences. We hope to increase the positive consequences through our Oil for Development initiative. However, much of Africa’s growth is also taking place in the services sector, particularly within telecommunications, electricity and retail trade. For example, investments in telecommunications and ICT are now more important for South Africa’s economy than investments in the mining and extractive industries.

Norwegian companies should also be taking part in these opportunities and thus contributing to the economic development that is so badly needed in this part of the world. EFTA’s free trade agreement with the countries in the Southern African Customs Union, which the Minister of Trade and Industry mentioned, is thus a signal to you too.