Yong, L. 2016. Mobilising the private sector for sustainable industrialisation. GREAT Insights Magazine - Volume 5, Issue 5. October/November 2016.
Inclusive and sustainable industrialisation and the private sector must be a high policy priority.
Rarely has a country progressed and become developed without sustained structural transformation from an agrarian or resource-based economy towards more productive agri-business and a sophisticated industrial or service-based economy. Private sector-led industrial development plays a significant role in bringing about the much needed structural changes that can set the economies of poor countries on a path of sustained economic growth.
Industry provides an ecosystem for entrepreneurship, promotes business investment, fosters technological upgrading and dynamism, improves human skills and creates skilled jobs, and through inter-sectoral linkages establishes the foundation for both agriculture and services to expand. Industry, by providing decent jobs and expanding the fiscal revenues needed for social investments, can boost capacity for inclusive development, creating decent work for all, improving health and education systems and living standards, thus alleviating poverty, socio-political tensions and tackling the root causes of migration.
A deepening in manufacturing sophistication corresponds to changes in the quality of production factors and a decrease in transaction costs, usually reflecting good infrastructure (transport, energy, telecommunications and utilities), favourable business environment for development of small and medium-sized enterprises (SMEs) and their networks, a solid regulatory framework and effective system of enforcement, and the indispensable facilitating and coordinating role of government.
Industrial processes that are less carbon-intensive can reduce the consumption of non-renewable resources and minimise greenhouse gas emissions, while also stimulating innovation, technological change, job creation and economic diversification. Inclusive and sustainable industrial development (ISID) is thus recognised as a primary engine of technology development and transfer, skills development, productivity growth, infrastructure and green technology development and adoption – some of the key requirements for eliminating poverty by 2030, as set out in the sustainable development goal – SDG 1.
Through the adoption of the 2030 Agenda for sustainable development and related SDGs, particularly SDG 9 “Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation”, the international community recognised the importance of inclusive and sustainable industrial development for economic growth because of its multiplier effect on all economic sectors. Industry and manufacturing in particular, is key to promoting sustained, inclusive and sustainable economic growth, full and productive employment, and decent work for all, on the way to eradicating poverty everywhere (SDGs 8 and 1). There is a strong correlation between the manufacturing value added (MVA) and poverty reduction. For example, according to UNIDO industrial statistics 1% increase in MVA per capita decreases the poverty head count by almost 2%. Inclusive and sustainable industrialisation that mainstreams the three pillars of sustainable development permeates the 2030 Agenda in many other SDGs, as outlined in the UNIDO publication “Achieving the industry-related goals and targets”.
Sustained economic development typically requires agriculture — through higher productivity — to provide food, labour and even savings to the processes of urbanisation and industrialisation. The economic development of today’s industrialised countries was almost universally accompanied by an increase in agricultural productivity in the early stages of development.
Most least-developed countries (LDCs) are seeing urbanisation and increasing shares of employment and GDP in services and manufacturing. The main issue is that structural transformation is not accompanied by productivity growth in agriculture, which still employs 60% of the population and 25% of the value added in LDCs. In contrast to Asia, in many Sub-Saharan African countries structural change has been growth reducing because labour moved from high- to low-productivity sectors.
Given that agriculture and agribusiness will remain important sources of livelihoods in Africa and a cornerstone of food security and economic development, diversification within agriculture to higher-productivity activities, as well as from agriculture into modern manufacturing, is vital for countries to pull out of poverty, and to remain there.
The private sector, as the primary driver of economic growth and employment creation, has a central role in poverty reduction and the achievement of the SDGs. For the private sector to drive economic growth, social inclusion and environmental sustainability, a favourable business environment, industrial policies and a system of incentives are necessary. This has been even more recognised in the aftermath of the 2008 economic crisis, when both developed and developing countries have prioritised the development of their private sector and industry in their economic policy strategies. To increase the impact of private sector development on poverty, UNIDO supports developing countries to improve the business environment and lay the policy and institutional foundations for the development of a vibrant private sector.
At the global level, the 2030 Agenda for sustainable development, approved in September 2015, also recognises the role of the private sector to support the international community’s endeavours to tackle our economic, social and environmental challenges. In the 2030 Agenda, the call for an active engagement of the private sector can be found in several passages. Among the goals, SDG 17 “Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development” refers directly to the role of the private sector, in line with the Addis Ababa Action Agenda and its multi-stakeholder approach to ending poverty once and for all.
More recently, the UN General Assembly adopted a resolution on the Third Industrial Development Decade for Africa (IDDA) 2016-2025, whose implementation requires again a strong commitment by the private sector, both domestically and as a foreign direct investor.
At the European Union (EU) level, the Joint Africa-EU Strategy Declaration and Roadmap 2014-2017 also reaffirm the priority of accelerated industrialisation. Moreover, the European Parliament resolution of 14 April 2016 on the private sector and development (2014/2205(INI)) stresses the importance of the UNIDO’s Lima Declaration on ISID and the impact of the manufacturing sector on development.
In September 2016, the G20 launched a new “Initiative on supporting industrialization in Africa and Least Developed Countries”. The Hangzhou G20 Leaders’ Communiqué recognises the importance private sector, economic diversification and industrial upgrading play in developing countries, and launched the G20 Initiative in line with UNIDO’s report to G20 Development Working Group “Industrialization in Africa and Least Developed Countries. Boosting growth, creating jobs, promoting inclusiveness and sustainability”.
The business community associated with the work of the G20 (B20) equally recognised the importance of enhancing the role of SMEs, women and young people in business, including the participation of SMEs in global value chains as essential to inclusive and sustainable growth worldwide.
Therefore we see a strong consensus on the role the private sector and industry can play in driving sustainable development. The policies and initiatives outlined above indicate that policy-makers are willing to help create the enabling environment that can drive businesses to engage in development. But to be effective, all these initiatives need the private sector to step up to the challenge and be ready to reap the opportunities of inclusive and sustainable industrial development.
The private sector has a major role to play in the development and uptake of new innovative technologies and business practices. Businesses will be essential contributors to the establishment of a circular economy, through more resource efficiency and effectiveness, cleaner production and better waste management, and to the fight against climate change through more energy efficiency and renewable energies. But government support in addressing market failures and under-provision of public goods such as new knowledge, technology and information, financial stability, preserving the environment and addressing climate change through various instruments (taxes, subsidies and others) is crucial.
SMEs are the largest job providers in the formal and informal sectors. They are key drivers of innovation in many sectors, as they exhibit higher degrees of flexibility and less bureaucratic organisational structures. Effective policies that create an enabling environment for SMEs, and networks to develop, including affordable access to basic infrastructure, prudent legislation and provision of adequate finance, are imperative. Notably, and due to the composition of the enterprise population across low-income economies, a holistic approach that supports start-ups and micro enterprises to enter industrial value chains or even develop into industrial SMEs through training remains critical.
These moves will require greater promotion of green industries and environmental policies for sustainable production and consumption through incentives and targeted support to private industries, and to SMEs in particular. It becomes particularly important to ensure that specialised knowledge and technical assistance is brought to businesses and industries, in order to enhance their capability to comply with such standards. Technology transfer and the sharing of best practices from large-scale businesses, academic and research institutions and the public sector is one important way of support.
Discussions have long been underway regarding the roles that private sector and industry can play, and their relevance to the development agenda. Considering the investments required to achieve the SDGs are estimated to range from US$1.6 to 2.8 trillion per year, it becomes clear that the private sector is needed to provide a large share of resources.
Partnering with the private sector is therefore the foundation of any successful large-scale development strategy. It is absolutely critical to build up vibrant, systematic and innovative partnerships with the private sector for the successful implementation of the SDGs. Working in public-private partnerships to provide reliable knowledge, information, innovative and scalable solutions, and other multi-stakeholder resources can have a transformational effect.
Achieving the transformative and ambitious 2030 Agenda will only be possible if synergies are developed between governments, businesses, the international community and other stakeholders.
UNIDO has always been at the forefront of the United Nations work with the private sector. Looking back, as the organisation is celebrating its 50th anniversary this year, engaging with business associations and SMEs – the backbone of the economy – has been one of UNIDO’s core areas of work. In recognition of this role, to ensure that the private sector is fully associated with the UN process leading to the 2030 Agenda, on behalf of the whole United Nations system, UNIDO co-led with the UN Global Compact a series of global consultations on “Engaging the private sector in the post-2015 Development Agenda”. The consultation, that took place on all continents, highlighted the indispensable contribution the private sector and industry can deliver for achieving sustainable development.
Moreover, UNIDO has been actively engaged in partnerships with the private sector to make real development happen on the ground. To scale up its partnership approach, UNIDO has recently developed a new type of assistance package for its member states: the Programme for Country Partnership (PCP). PCPs are fully aligned with the industrialisation priorities of the benefitting country and the national programmes relevant for advancing ISID. These priorities are connected with the work of development finance institutions that provide credit lines for large-scale development, such as infrastructure and industrial zones, as well as commercial banks that provide finance for private investment. Other partners in PCPs include UN organisations, bilateral donors and the private sector. With an increasingly complex array of actors, strategies and means of intervention, it is important that activities and resource flows are well coordinated.
The PCP brings together actors through a multi-stakeholder platform to coordinate and optimise the contribution of each. A strong national coordination mechanism is required to manage the complex partnerships involved in a PCP. Therefore a task force is established that brings together key PCP partners, under the leadership of the national government.
In collaboration with UNIDO, the task force is responsible for overall coordination, prioritises projects and programmes, and allocates resources for the execution of the PCP. The task force also monitors progress to ensure that expected results are achieved. The Programme for Country Partnership is already being implemented in Ethiopia and Senegal and is in it’s early stages in Peru, which recently requested to become a pilot country.
The PCP for Ethiopia focuses on developing light manufacturing industries, particularly in agro‐food processing, textiles and apparel, and leather. These sectors were chosen due to their prospects for job creation, strong linkages to the agricultural sector, and potential for exports and private sector investment. The PCP also integrates complementary cross‐cutting interventions according to government-defined priorities.
In Senegal, the PCP focuses on industrial policy development, the establishment of agro‐poles for agricultural value chains and industrial park development, while integrating complementary cross‐cutting interventions. The Programme, officially launched in April 2015, is chaired by the Prime Minister of Senegal.
The current implementation in both countries is very encouraging and many other countries have indicated their interest in the PCP approach. With the Ethiopian government, we are organising the First International Agribusiness Investment Forum in Addis Ababa, from the 5th to 7th October on “Unleashing Ethiopia’s Investment Potential”. It will give the possibility to development partners and investors to better understand the business opportunities offered by the PCP and to join us in the sustainable industrialisation of Ethiopia. With a large mobilisation, we can really create many opportunities for women and youth and a better future for the Ethiopian people and beyond.
About the author:
LI Yong is the Director General of the United Nations Industrial Development Organization (UNIDO). As Vice-Minister of Finance of the People’s Republic of China and member of the Monetary Policy Committee of the Central Bank for a decade, Mr. LI Yong was involved in setting and harmonizing fiscal, monetary and industrial policies, and in supporting sound economic growth in China.
This article was published in GREAT Insights Volume 5, Issue 5 (October/November 2016).