Minister of International Development and Human Rights, Hilde Frafjord Johnson

Strategy for Norway’s support for private sector development in the developing world

English summary of presentation at The Norwegian Trade Council 15 February 1999

Executive summary

The Government presents for the first time an overall strategy for Norway’s support for private sector development in the developing world. The main objective is to promote economic growth and profitable production in developing countries. This helps to reduce poverty in these countries by creating jobs and income for the population. It also creates tax revenues that provide a basis for countries’ own efforts within areas such as health and education. The purpose is also to prevent further dependence on development assistance and reduce the danger of an increased burden of debt. The strategy shall serve as a guideline for Norwegian efforts to promote private sector development in developing countries.

The intention of the strategy is to ensure that development cooperation in this area is rooted in the Government’s overall development policy goals and priorities, such as the focus on poverty and recipient responsibility. At the same time, changes in global and national framework conditions lead to a need for creative thinking and new approaches to supporting private sector development in the developing world.

The point of departure for the strategy is that the needs of the developing world shall be given priority. Success will therefore be measured in terms of the results in the developing world. This approach reflects a recognition of the fact that the goal of contributing to private sector development in the developing world demands a broad approach ranging from global measures for improvement of the situation of the developing countries in relation to international trade via measures to improve conditions for commerce and industry at national and local levels to direct incentives for investments through institutions such as NORFUND. An integrated perspective that views the different allocations and budget chapters in relation to one another will therefore be important. This applies to country programmes, regional allocations and global schemes as well as to the relationship between bilateral and multilateral assistance. The growing globalization involves a tighter weaving together of trade policy and development assistance policy. Improvement of the developing countries’ potential for exploiting the WTO system in relation to globalization is another important objective of the new strategy for private sector development in the developing world.

The strategy will emphasise a close cooperation with other donors and enable more efficient donor coordination. It is of decisive importance that increased Norwegian efforts for private sector development in the developing world are rooted in plans and priorities of the government in recipient countries. Incentive schemes for investments must be adapted to local conditions and be well coordinated with the rest of the range of instruments of the business development policies of individual countries. Stimulation of long-term investments that generate income and jobs in developing countries will be given higher priority at the expense of export-oriented schemes. The strategy will reflect the fact that agriculture and primary industries still dominate the structure of industry in many of the poorest developing countries.

Improvement of legal, institutional and political fundamentals for private sector development plays a central role in the strategy. Neither national initiatives nor foreign assistance will function efficiently unless a minimum of such frameworks is in place. In many developing countries, inadequate framework conditions are perhaps the greatest barrier to sustainable economic development, and cause foreign capital to flow to other, more predictable markets. Frequent characteristics are inadequate and insecure legal guidelines, an undue degree of bureaucracy that hinders private initiative, corruption and inadequate financial policy. In many places, poor physical infrastructure is still a great problem: potential investors fear that goods and services will not reach the market in time. The new strategy places considerable emphasis on surmounting this kind of barrier to successful commercial and industrial activity. Projects and programmes under the auspices of bilateral and not least multilateral development assistance will help to build capacity and strengthen institutions, among other ways, by exchanging experience with countries that have more robust and open frameworks for investments.

The strategy involves plans for continued active international efforts to make incentive schemes for export and investments as efficient as possible, and to enable the developing countries’ own commerce and industry to succeed in winning contracts, including contracts in the assistance market. The Government will therefore intensify its efforts in relation to the OECD towards untying assistance from the purchase of goods and services from the various donor countries, and will at the same time untie Norwegian schemes for private sector development in step with other donor countries active in taking initiatives in this process.

The strategy establishes principles and guidelines for future Norwegian support of private sector development in the developing world, and promotes recommendations for making the strategy operational with an emphasis on the following efforts and measures:

• Promote investments in the developing world and encourage Norwegian commerce and industry to invest and establish a long-term involvement in developing countries.
• Reduce export subsidy schemes in step with other donor countries active in international untying initiatives.
• Improve national framework conditions associated with macroeconomic conditions, development of good governance and improvement of institutional conditions, for example through a well functioning financial sector.
• Assistance to reduce marginalization of the poorest countries and strengthen their capacity to exploit the potential of globalization, while limiting its disadvantages.
• Assistance to strengthen South-South trade and regional economic cooperation between the countries of the developing world.
• Promotion of trade with developing countries by strengthening current arrangements for import from developing countries to Norway and by giving increased priority to general measures for increasing trade with the developing countries.
• Reinforce support of small and medium-sized enterprises, especially within technical assistance and microfinance.
• Active and decisive use of the Norwegian knowledge base, including Norwegian commerce and industry, where this responds to identified and expressed needs in the developing world.

As in the case of other development work, work on the implementation of the strategy for private sector will draw on the Norwegian resource base, including Norwegian commerce and industry, public institutions and NGOs, in terms of the needs of the developing world. Norwegian commerce and industry has a great deal of expertise that can be utilized in the work on promoting productive activity and developing the private sector in developing countries. Arenas will therefore be established for cooperation on private sector development and investment potential in the developing world. This will enable the strengthening of the dialogue between Norwegian assistance authorities and Norwegian commerce and industry, and with appropriate players in recipient countries.

At country level, our foreign missions will play a central role in ensuring that these efforts are made on the national authorities’ own terms, and that they are coordinated with the efforts of other donors, including multilateral institutions. In order to try out the recommendations of the strategy and rapidly gather experience, implementation of the strategy will first be given priority in three countries, probably Mozambique, Uganda and Zimbabwe. In these countries, the use of resources to stimulate private sector development will be given priority at the embassies. The strategy entails that private sector development will to a greater extent than previously be an integrated part of Norway’s total development cooperation. This will be reflected in the organization and priorities within the assistance. Quality assurance of the entire process, from the planning of sector programmes and projects to implementation, reporting and evaluation, will emphasize continuous assessment of performance and necessary correction of the use of instruments. This must be carried out in close coordination with other donor countries and multilateral institutions.