MakingIt - UNIDO

MakingItIndustry for Development

■ China in LatinAmerica

■ Beyond CSR■ Peru■ Industrial symbiosis■ Green finance

Number 15

Ourindustrialfuture

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NUMBER 1●We must let nature inspire us– Gunter Pauli presents analternative business model thatis environmentally friendly andsustainable ●Hot topic: Is itpossible to have prosperitywithout growth? Is ‘greengrowth’ really possible?

NUMBER 2●The International EnergyAgency’s Nobuo Tanaka looks atenergy transitions for industry ● Energy for all – KandehYumkella and Leena Srivastavaon what needs to be done toimprove energy access

NUMBER 3● China’s stunning economicrise: interview with minister ofcommerce, Chen Deming ● Towards a more productivedebate – Ha-Joon Chang callsfor an acceptance thatindustrial policy can work

NUMBER 4● Strengthening productivecapacity – Cheick Sidi Diarraargues that the LDCs should –and can – produce more, andbetter quality, goods ● PatriciaFrancis on climate change andtrade ● Hot topic: The relevanceof entrepreneurship

NUMBER 5●A window of opportunity forworld trade? – Peter Sutherlandassesses the prospects for theconclusion of a multilateraltrade agreement ● A path tomutual prosperity –Xiao Ye ontrade between sub-SaharanAfrica and China

NUMBER 6● Feeding a crowded world –IFAD’s Kanayo Nwanze arguesthat smallholder farmers musthave opportunities to beentrepreneurs ● Nestlé CEOPaul Bulcke on ‘Creating SharedValue’ ● Hot topic: Does energyefficiency lead to increasedenergy consumption?

NUMBER 7●The globalization paradox –Dani Rodrik ● Unfair share –Thomas Pogge on affluentcountries’ responsibility forincreasing global poverty ● Hot topic: Is nuclear powernecessary for a carbon-freefuture?

NUMBER 8● Closing the gender gaps –Michelle Bachelet onovercoming the barriers thatprevent women from seizingeconomic opportunities● Engineering eco-friendlysolutions – Carolina Guerra onhazardous waste in Colombia● Hot topic: Growth: the end ofthe world as we know it?

NUMBER 9● Jeremy Rifkin on the ThirdIndustrial Revolution● Morgan Bazilian and KandehYumkella on the new economy:inclusive and sustainable● Hot topic: Climate change,climate action

NUMBER 10● Klaus M. Leisinger, chair ofthe Novartis Foundation forSustainable Development, onthe intersection betweenindustry and health ● D-Rev’sKrista Donaldson on designinghealth care equipment for thedeveloping world ● Hot topic:Gas flaring

NUMBER 11● Mei Yi, president of AIESEC,on the keys to effective youthengagement ● Perspectives onthe Arab Spring ● Sustainia –the world of tomorrow ● Hot topic: The ‘Girl Effect’

NUMBER 11● Mei Yi, president of AIESEC,on the keys to effective youthengagement ● Perspectives onthe Arab Spring ● Sustainia –the world of tomorrow ● Hot topic: The ‘Girl Effect’

NUMBER 12● Fernando Pimentel on doingbusiness in Brazil ● Profile ofChina’s trail-blazing BroadGroup ● Devaki Jain on thefeminists of the South ● Hot topic: Fracking

NUMBER 13● Resource scarcity as a catalyst for green development –Novozymes ● Ethiopia’ssoleRebels ●ArnoldSchwarzenegger onimplementing a sustainablefuture ● Hot topic: ICT anddevelopment

NUMBER 14● Denmark’s Minister of theEnvironment ● Dani Rodrik –The right green industrialpolicies ● Recycling in Russia ● Intra-BRICS cooperation ● Hot topic: Is business doing enough?

A quarterlymagazine.Stimulating,critical andconstructive. A forum fordiscussion andexchange aboutthe intersectionof industry anddevelopment.

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EditorialIndustrial development fell out of fashion in the so-called “North” in the 1990sdue to the hike in the services sector and the prevailing gospel of WashingtonConsensus policies. Ironically, at the very same time, industrialization wasslashing poverty rates in East and South Asia. In fact, it is largely throughindustry that the Millennium Development Goal (MDG) Goal 1 – to halveextreme poverty and hunger – will be met at the global level.

Since the turn of the millennium, things have changed immensely. Industry is back! Manufacturing and entrepreneurship are now recognized as the key drivers to create the growth rates, jobs and economic structuresneeded to eradicate poverty and provide sustainable livelihoods for all.

Industrial policy – government policies directed at affecting the economicstructure of the economy – is firmly back on the agenda in countries aroundthe world and at all stages of development. The standard argument was thatmarkets were efficient, and there was no need for government to intervene. But the global crisis of 2008-2009 showed that markets were not necessarilyefficient. Furthermore, without strong government intervention, the marketeconomies of the United States and Europe may have collapsed. Today, therelevance and pertinence of industrial policies are acknowledged bymainstream economists and political leaders from all sides of the ideological spectrum.

In this issue, our contributors look at the future of industrial developmentfrom a variety of perspectives but each with a common pursuit: the goal ofinclusive and sustainable industrial development for all countries.

sustainableinclusive

industrial social inclusion

gender equality

poverty eradicationresource efficiency

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addit

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GLOBAL FORUM6 Letters8 China in Latin America China’s risehas created an unprecedenteddemand for Latin American andCaribbean exports – Kevin Gallagherconsiders how Latin America canpreserve its prospects10 Hot topic – Beyond corporate social responsibility Richard Brubakerand Mike J. Thompson consider whatdoing ‘good’ business actually means in practice

16 Business matters –news and trends

FEATURES18The new industrial revolution – Peter Marsh looks at the imminentmanufacturing transformation22 Busting the myths –Carlos Lopes on the importance of industrialization for Africa’s development

KEYNOTE FEATURE24 Interview with new UNIDO Director General LIYong “To achieve inclusive and sustainable industrial development, all of UNIDO’s tools will be used”

MakingItIndustryforDevelopment

The designations employed and thepresentation of the material in this magazinedo not imply the expression of any opinionwhatsoever on the part of the Secretariat ofthe United Nations Industrial DevelopmentOrganization (UNIDO) concerning the legalstatus of any country, territory, city or area orof its authorities, or concerning thedelimitation of its frontiers or boundaries, orits economic system or degree ofdevelopment. Designations such as“developed”, “industrialized” and“developing” are intended for statisticalconvenience and do not necessarily express ajudgment about the stage reached by aparticular country or area in the developmentprocess. Mention of firm names orcommercial products does not constitute anendorsement by UNIDO.The opinions, statistical data and estimatescontained in signed articles are theresponsibility of the author(s), includingthose who are UNIDO members of staff, andshould not be considered as reflecting theviews or bearing the endorsement of UNIDO.This document has been produced withoutformal United Nations editing.

Contents

Editor: Charles [email protected] committee:Thouraya Benmokrane, Jean Haas-Makumbi, Sarwar Hobohm (chair),Kazuki Kitaoka, Jo Roetzer-Sweetland,and Ravindra WickremasingheCover illustration: Matt HerringDesign: Smith+Bell, UK –www.smithplusbell.comThanks for assistance to ZHONG XingfeiPrinted by ImprimerieCentrale, Luxembourg, on PEFC-certified paper –http://www.ic.lu To view this publicationonline and to participate indiscussions about industry for development, please visitwww.makingitmagazine.netTo subscribe and receive future issuesof Making It, please send an emailwith your name and address [email protected] It: Industry for Developmentis published by the United NationsIndustrial Development Organization(UNIDO),Vienna International Centre, P.O. Box 300, 1400 Vienna, AustriaTelephone: (+43-1) 26026-0, Fax: (+43-1) 26926-69E-mail: [email protected] 15, 4th quarter 2013Copyright © The United NationsIndustrial Development Organization No part of this publication can beused or reproduced without priorpermission from the editorISSN 2076-8508

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30 ‘Bottom-up’ development inpost-neoliberal Latin America –

Milford Bateman on the new forms ofindustrial policy transforming thecontinent’s industrial structure32 Industrial symbiosis: mutuallybeneficial – Peter Laybourn looks athow developing countries can use anapproach which supports a speediertransition to sustainable development34 Country feature: Peru – LatinAmerica’s star performerAn economicsnapshot, including an interview withPresident Ollanta Humala38 Good business – Profile of China’sYiyuan Environmental Group

POLICY BRIEFS42 How to stay ahead in a low- carbon global economy44 Export-led development is no longer viable46 Endpiece – Nannette Lindenberg onsetting green finance on the right track

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Cover illustrator MATT HERRING has 18 yearsexperience working with a long roster of internationalclients on a diverse range of illustration and designprojects. His career began as a commercial illustratorproducing full colour, silkscreen prints for newspapersand magazines, and his roots in printmaking stillinfluence his current digital practice. Based in London,Herring uses a montage of found and self-generatedgraphic material to produce vibrant images for thepublishing, design and advertising industries. Hisclients include The Times, Adobe, NatWest, Nike, BritishAirways, MTV, Pepsi Co, Vanity Fair, EMI, The FinancialTimes and BBC Worldwide. www.mattherring.com

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LETTERS

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I like the interview with WalterStahel on your website (“Thecircular economy”). He said,“Reusing, repairing, re-manufacturing and re-marketing goods andcomponents in an industrialcontext is where you get thebiggest financial benefit.” Check it out. ●Nina Reed, website comment

MegacitiesInterested to read your‘Business Matters’ piece(Making It issue 13) on Medellínbeing awarded ‘most innovativecity in the world’ by the UrbanLand Institute and the WallStreet Journal – with its improvedtransportation and social equitypromotion, Colombia’s secondcity sounds like it has someinspiring municipal leaders.

And how the world’s citiesneed them! I came across anastonishing article on the webrecently which said that 200,000people are added to thepopulation of the world’s citiesand towns every single day! This is about five million amonth or 60 million a year.

It also talked about‘megacities’, those with apopulation of ten million plus.In 1950, there was only one –New York City (curiously one ofthe runners-up to Medellín inthat award I mentioned!). In2000, I think it said there were15 of these huge conurbationsand in 2015, there will be 20,

mostly in the developingworld. Half of these megacities,such as Tokyo, Dhaka, Mumbai,São Paulo, Delhi and MexicoCity, will have more than 20 million residents.

This astonishing growth I understand to be becausealthough for many the qualityof urban life may be poor, thecountryside is poorer still.Despite appalling conditionsfor many in our megacities(such as poor housing, highunemployment and minimalhealthcare) the urban poor are‘better off ’ than their ruralcousins and move to thesecities.

In these circumstances, we need all the innovation we can get. ●Wilhelmina Young, New YorkCity, USA, by email

A contradictionwe have to solve Great to read ArnoldSchwarzenegger in yourmagazine (Making It issue 13)

Left: Medellín (Colombia’ssecond city), recentlyawarded ‘most innovativecity in the world’ by theUrban Land Institute andthe Wall Street Journal.

on financing sustainable low-carbon projects at sub-nationallevels in order to reducegreenhouse gas emissions andfight global warming.

These projects are urgentlyneeded if industry is torespond to this problem – butcan we “scale up in order tomeet the UN sustainableenergy for all targets”, as Arnie says?

‘Economic growth’ is still themantra of world leadersseeking to alleviate theproblems of the worldeconomy. But in order tosustain economic growth wemust expend vast amounts ofenergy. Yet our main source ofenergy, fossil fuels, is also themain contributor to climatechange. And climate change, if unchecked, will halt growth. It’s a contradiction we have tosolve. As Arnie put it, “humanityis facing inextricable challengesdue to climate change.”

Please can we have moreanalysis and discussion inMaking It about this?●Martina Peter, by email

No frackingVery interesting debate inMaking It issue 12 (“Fracking –yes or no?”) on hydraulicfracturing to extract natural gasfrom the earth – better knownas “fracking”. But I thought theguy in favour of fracking (NicGrealy) was irresponsiblydismissive of some of thearguments against.

For example, he suggestsextra water usage in the processis “minimal”. Yet fracking uses huge amounts of water. A single well may use over five million gallons over itslifetime. Some of the bigfracking areas, like north Texashere in the US, are in semi-aridplains where the subterraneanaquifer is the only water source.Though not the only cause,fracking contributes to the on-going drought that hasplagued the American Midwestin recent years.

He also suggests all the waterused can be recycled. But thefluids used in fracking are acombination of water, sand andchemicals. Energy corporationsdo not publicly report whatchemicals they use (as Grealyseems to acknowledge, yet doesnot address properly). There aremany instances where toxicwastewater has migrated backinto the local aquifer, poisoning

The Global Forum section of Making It is a space for interaction anddiscussion, and we welcome reactions and responses from readers aboutany of the issues raised in the magazine. Letters for publication in Making Itshould be marked ‘For publication’, and sent either by email to:[email protected] or by post to: The Editor, Making It, Room D2142, UNIDO, PO Box 300, 1400 Wien, Austria. (Letters/emails may be edited for reasons of space).

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well water for entirecommunities.

What wasn’t mentioned wasthat every fracking injectioncreates a mini-earthquake. Theyoften trigger local fault lines tocause more serious earthquakes.In north Texas there have been24 since 2006, compared to justone in the previous 100 years.These quakes allow gas and toxicwastewater to escape from theirshale strata, into aquifers or evenescaping to the surface.

Health problems can resultfrom fracking pollution. Forexample, the biologist SandraSteingraber says, “There arereasons to suggest that airpollution and other stressorsfrom drilling and frackingoperations in the Barnett Shale

area of Texas may be playing arole in the story of breast cancer.” ●Ray Evans, by email

The real currencyof lifeMaking It issue number 6(“Agribusiness: from farm tofork”) had a fascinatinginterview with the eco-activistVandana Shiva in which,amongst other things, shetalked about how to “feed thecities”. In The Guardiannewspaper, at the beginning ofNovember 2013, she wroteabout “anti-life economics” andhow “limitless growth is thefantasy of economists,businesses and politicians.” She

especially questioned how weuse the gross domestic product(GDP) to measure the wealth ofnations. As she puts it,“...nature’s amazing cycles ofrenewal of water and nutrientsare defined as non-production.A living forest does notcontribute to growth, but whentrees are cut and sold as timber,we have growth.” She argues“growth is based on creatingpoverty both for nature andlocal communities”, and goeson to look at water extractedbeyond natural capacity tocreate soft drinks; modifiedseeds which lead to debt forpoor farmers; and theprivatization of public systemsleading to costlier services forpeople who find it difficult to

heat their homes any longer. For those of us working to

develop industry to benefit theplanet’s ever-growingpopulation, we need to listen topeople like Vandana. As she says,Nobel prize-winningeconomists like Joseph Stiglitzand Amartya Sen have admittedthat GDP does not “capture thehuman condition” and haveurged the creation of differenttools to gauge the well-being ofnations. We need to createmeasures beyond GDP, andeconomics beyond the globalsupermarket, to rejuvenate realwealth. We need to rememberthat the real currency of life islife itself. ●Lesley Allen, London, UK, by email

For further discussion of theissues raised in Making It, pleasevisit the magazine website atwww.makingitmagazine.net andthe social networking Facebooksite. Readers are encouraged tosurf on over to these sites to joinin the online discussion anddebate about industry fordevelopment.

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Latin America was hardly on China’s radarscreen until the turn of the century, whenthe Asian giant’s entry into the WorldTrade Organization allowed it to integratemore fully into the world economy.China’s subsequent rise has created anunprecedented demand for LatinAmerican and Caribbean (LAC) goods,particularly commodities, which hashelped boost the region’s growth for overa decade.

Boom times in China have been goodfor Latin America, whose exports to theAsian powerhouse increased nine timesbetween 2000 and 2009 in real terms, faroutpacing the region’s overall exportgrowth, which didn’t even double over thesame period. However, this windfall wasnot widely shared: a handful of productsaccount for just over 80% of all regionalexports to China, chiefly iron, soy, crudeoil and copper.

China is increasingly investing in manyof these same Latin American sectors.Hard statistics are difficult to come by, but Chinese firms have invested at leastUS$25bn in Latin America between 2005and 2009.

Over the longer-run future, it is hard topredict whether China will be a sustainedsource of demand for Latin Americancommodities. Even if China’s appetite for

LAC resources remains undiminished,the consequences may still be mixed.Demand from China could accentuateLatin America’s over-reliance oncommodities exports and jeopardize theregion’s ability to diversify its exportbasket toward manufactures and modernservices. It could also drive long-lastingsocial and environmental change withunknown effects.

Economists also express concern thatChina’s tug on the LAC export basket willinfect the region with “Dutch disease,” acommon affliction among primarycommodity-dependent countries. Over-dependence on commodities has beenshown to lead to deindustrializationbecause the discovery of valuable naturalresources and their subsequent exportraise the value of a nation’s currency, thusmaking its manufactured andagricultural goods, as well as its services,less competitive. This in turn eventuallyleads to increasing imports anddecreasing exports, creating balance-of-payment problems and leading to pooreconomic performance.

In terms of competitiveness, it is fairlycertain that China is outcompeting LatinAmerica in world manufactures andservices exports. In 1980, China was noteven ranked in terms of global

KEVIN P. GALLAGHER is AssociateProfessor of International Relations atBoston University, USA, and is co-founder of the Triple Crisis blogwww.triplecrisis.com. He is the author,together with Roberto Porzecanski, ofThe Dragon in the Room: China and the Future of Latin AmericanIndustrialization.

China’s rise has created an unprecedented demand for Latin American and Caribbeangoods, particularly commodities, which has helped boost the region’s growth. Ultimately,however, such export growth may prove unsustainable. Perhaps even worse, Chinesemanufactured goods are more competitive than those from Latin America in both homeand world markets. Kevin Gallagher considers how Latin America can preserve its prospects.

China in Latin America


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competitiveness, but by 2009, China’smanufactures had become the mostcompetitive in the world. Argentina, Braziland Mexico are the only Latin Americannations with significant world exportshare, and all three have struggled tomaintain competitiveness.

These analyses should not be taken asthe latest reason to blame China foranother country’s ills. China is not toblame. These trends are largely the resultof policies put in place by Latin American

countries. Many had adopted “shocktherapy” or the “Washington Consensus.”Governments rapidly liberalized trade andinvestment regimes and reduced the roleof the state in economic affairs, oftenthrough privatizations that, in a number ofcases, went painfully awry. China has takena more gradual approach to integratingwith world markets.

Rather than blaming China, LatinAmerica can build on some of its ownrecent successes and learn from its

Asian competitor in order to maximize the gains from its new economicrelationship with China.

First, the additional revenue generatedby exports to China and elsewhere canprovide new sources of funds forstabilization and growth programmes. Chile and a handful of other LatinAmerican nations have createdstabilization funds that save some of theproceeds from commodities exports forperiods when prices are low or

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A worker walkspast by containersfrom ChinaShipping companyat Brazil’s mainocean port ofSantos city,September, 2012.


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the nation needs macroeconomicstimulus. Chile’s fund, which comes fromcopper exports, enabled that nation to puttogether an effective stimulus package inresponse to the financial crisis.

There is no reason why such funds needonly be earmarked towardmacroeconomic stabilization. Revenuefrom commodities exports could also beused to invest in environmentalprogrammes to mitigate the negativeeffects of commodity-driven growth and,perhaps most importantly, in programmesto boost industrial competitiveness.

It is in terms of industrialcompetitiveness that Latin America canlearn the most from China. That country’spath to integration with world markets hasbeen gradual and strategic, whereas mostLatin American nations rapidlyrelinquished the role of the state ineconomic affairs. While China may not bean ideal model for development given itsautocratic state, it certainly should be amotivator for nations with manufacturingcapabilities to think hard aboutcompetitiveness and upgrading.

Even though Latin America and Chinabegan their reforms at roughly the sametime, their motivations for reform werequite different. Whereas Latin Americanreform began around 1982 as a reaction tothe collapse in oil prices, Chinese economicreforms began in 1978, two years after thedeath of MAO Zedong and the end of theCultural Revolution, as the country beganto cautiously reopen to the world. In thatyear, China embarked on a programme ofeconomic reform aimed at strategicintegration into the world economy byfollowing a “dual track” policy. The policyconsisted of liberalizing FDI and inflow ofimported inputs to selected industries,while at the same time buttressing thosesectors to the point of maturity andnurturing other sectors until they wereready to face competition with imports.

China’s industrial strategy has beenthree-pronged. First, government policyhas focused on creating endogenousproductive capacity by targeting specificindustries through state-ownedenterprises (SOEs) or government support,paying increasing attention to science andtechnology policy and linking the SOEswith the private sector and researchinstitutes. Secondly, and very importantly,Chinese support for domestic industry hasalways had an eye on foreign markets:China has gradually and strategicallyintegrated into world markets in order togain access to technology and finance.Thirdly, in undertaking economic reform,China’s new leaders have taken anexperimental approach, using the marketand trade as a means to development.Hence, in the eyes of Chinese policymakers, the market and governmentpolicies should complement one another,while the weight of each should be allowedto change as the economy develops.

Such an approach stands in starkcontrast to Latin America. The regionexperimented with industrial policyduring its Import-SubstitutingIndustrialization period (roughly 1940 to1980). The approach was a modest successat best. The policy did help industrializenations like Brazil, Mexico, Argentina andothers in the region. Yet, with a fewexceptions, the firms within thoseindustries were extremely inefficient byglobal standards because there was toomuch focus on domestic markets. Inaddition, Latin American industrial policywas financed largely by debt, as opposed toexport revenue and savings in the Chinesecase. By the time LAC countries began theireconomic reforms in the early 1980s,dissatisfaction with the importsubstitution model had led to skepticismabout any government intervention in theeconomy. There was an abrupt transitionto free trade and market-based economies,

➤ “Even though Latin Americaand China began theirreforms at roughly the sametime, their motivations forreform were quite different.Whereas Latin Americanreform began around 1982 asa reaction to the collapse in oilprices, Chinese economicreforms began in 1978, twoyears after the death of MAOZedong and the end of theCultural Revolution, as thecountry began to cautiouslyreopen to the world.”


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which were seen largely as ends inthemselves: it was taken for granted thatfree markets would lead inevitably toenhanced learning through trade, thedeepening of industrialization andgrowth.

Both import substitution andunfettered free markets have proved lessthan ideal paths for Latin American andCaribbean development. Chineseinvestment in Latin America could be anopportunity for LAC countries to

undertake new development strategies.Increased export revenue could be used toinvigorate and expand stabilization fundsand provide the capital for an innovativeapproach to industrialization. There aresome signs that this is taking place. Aspreviously mentioned, Chile’s stabilizationfund allowed it to weather the globaleconomic downturn. Brazil has also begunto take industrialization and modernservices seriously again, particularlythrough its national development bank.

A business-as-usual approach, on the other hand, could be dangerous.Over-reliance on primary commoditiescould cause macroeconomic,employment and environmentalproblems in the longer term. What’smore, China is already swiftly out-competing Latin America in worldmanufacturing markets. As China hasshown, nations can conduct economicreforms to great benefit. Latin Americashould follow suit.

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Mexico's PresidentEnrique Pena Nietoshakes hands with China’sPresident XI Jinpingduring a news conferenceat Los Pinos PresidentialPalace in Mexico City,June 2013.


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Big companies like Unilever, Wal-Mart, andStandard Chartered have ambitious plansto alter their conduct, recalibrating towarda business model that is “good”. The sloganat Standard Chartered, for example, blendslongevity with beneficence: ‘Here forGood’. These plans will put them on adifferent trajectory than their peers. Theysee that ‘business as usual’, with its growingsocial, environmental and economicimbalances, has no future.

Yet, for all the corporate socialresponsibility (CSR) announcements,there have been few success stories thatillustrate going beyond business as usual,or even going beyond traditional CSRpractices.

Ben & Jerry’s, The Body Shop, Patagonia,Whole Foods Markets and Interface areoften cited, but these firms were foundedby leaders who had a different purpose inmind from day one. They have beencharacterized by their care for people and the environment, finding a balancebetween economic efficiency and thecommon good. But their molds were set before they grew into multibilliondollar firms.

Established multinational companiesstart from a different place and manyCEOs argue that moving beyond businessas usual is not realistic given investorconstraints and prevailing managementnorms. Modest shifts beyond CSRcompliance are all that is possible, they say.But corporations, like Unilever, Puma,IBM, GE and Danone, have challenged thatparadigm by fusing innovation withsustainable and social enterprise, creatingnew sources of value across their business.

Recalibrating a firm towards sustainablepractices is both challenging and risky fortraditional forms of businessmanagement. Compliance becomes thedefault position with strategic tweaks forreputational benefits. But an increasing

Beyond corporate social responsibility

number of business leaders are beginningto understand that compliance is a short-term strategy with long-termconsequences. For example, Tim Cook ofApple eventually had to engage with theFair Labor Association (FLA) to addressenvironmental and labour concernsthroughout Apple’s supply chains in Asia.

In the wake of incidents in Bangladesh,including the appalling loss of more than1,000 lives in the Rana Plaza factorycollapse, textile brands have had torecalibrate rapidly. H&M was among 50 prominent international companies to

Richard Brubaker and Mike J. Thompson consider whatdoing ‘good’ business actually means in practice.

RICHARD BRUBAKERis founder of CollectiveResponsibility, aShanghai-basedknowledge base,catalyst and facilitator,and Adjunct Professorof Sustainability, ChinaEurope InternationalBusiness School.

MIKE J. THOMPSONis co-founder of GLO –Good Leaders Online,a global leadershipselection, assessmentand developmentplatform, and isvisiting Professor ofManagement Practice,China EuropeInternational BusinessSchool.


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sign the Accord of Fire and Building Safetyin Bangladesh in 2013. The accord coverswide-ranging employee safety conditionsand includes a provision for legalenforcement, a new breakthrough fromprevious ineffective and voluntary codes ofthe past.

With brands thus tied to risk, buyers will be required to select vendors on thebasis of multi-partner, legally-backedagreements such as the BangladeshiAccord. We may even see the emergence of brand-based manufacturing plants inthe future.

Vocal stakeholders demand more than complianceMany of the more vocal stakeholders areno longer satisfied with complianceprocesses, and executives are seeking tointegrate ‘good’ into their strategies so as tomeet these expectations. Increasingly, it isthe institutional investors that arerequired to report on environmental,social and governance criteria in theirinvestment portfolios. For some,integrating sustainability into strategy hasled in innovative directions. They arediscovering a competitive edge that late

adopters cannot easily replicate. Lateadopters are more likely to fail to engagefresh customers and generate excitementin the marketplace.

CSR is a process whereby a firmbecomes aware of these risks, engagesthem as an organization (leadership first),builds capacity for change (reduction ofrisk or positioning for opportunity), andthen proceeds through various stages ofstrategic execution. It is not simplyvolunteering, nor is it philanthropy. It is developing a wide scope ofunderstanding around the company’svalue.

This means that a proper CSRassessment must include: ● the risks and opportunities that existwithin the workplace (such asenvironment, health and safety, employeewellness and diversity); ● the transparency and oversight ofdecisions, processes and individualactions (governance issues); ● environmental footprints (emissions,water usage, energy reduction); ● communities impacted by operations;and● the attitudes and expectations ofcustomers, as well as citizens.

There are three key areas of corporateresponsibility that have consistentlyshown to be of critical importance to theviability of companies: environment,governance, and workplace.

1. EnvironmentWhile global discussion on theenvironment tends to focus on planetarywarming and what to do about it,environmental issues for the averagefirm are still mostly local or internal.Water shortages, air pollution and othernegative impacts are now significantbusiness concerns. There are three maincauses. First, the impacts of social,financial and environmental regulations

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Cashier on the tillsat Whole FoodsMarket in the US.


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and citizen campaigns. Second, theincreased costs of doing business due tonatural resource supply constraints. Third,economic pressures have forced attentiontoward resource usage, biodiversityimpacts and environmental externalities.As environmental failures continue togrow in size and frequency, the firms thatunderstand how these failures align withtheir value chain will ultimately mitigatethe risks and maximize the opportunities.

2. GovernanceOne of the factors that is bringing greatertransparency to company boards is greaterscrutiny by institutional investors andfund managers of environmental, socialand governance issues.

While the US Securities and ExchangeCommission, the New York StockExchange, and state laws in the UnitedStates have complex and contradictoryregulations which have led to charges ofconfusion and ineffectiveness, investmenthubs in Asia, notably Singapore, HongKong and India, are stepping up theirregulatory environments along differentlines. All three have updated theirgovernance codes within the past 18 months to ensure greater transparencyin meeting the code. If companies do notmeet the standards, then listed companiesare required to explain why not. This so-called ‘comply or explain’ principle wasfirst established in the United Kingdomcode. It places firms under pressure fromthe market and the media to explain whygovernance standards are not being met,rather than clogging up courts with legalteams arguing about differinginterpretations of legal rules.

The international growth in legal andregulatory requirements for opengovernance requires a new breed of

managers. This affects recruitment andtalent management. Financial servicescompanies are already embracing full-blown ethical background checks onemployee candidates. In time, such checkswill become best practice for firmswishing to attract quality investors.

3. WorkplaceIn South-east Asia, one of the greatesteconomic and social changes is the rise ofemployment standards. Illicit andexploitative conditions for workers aredeclining across the region as wages andconditions improve. Progress is also beingmade in environmental health and safety,and independent monitoring andreporting is being enforced by companiesand governments. To maintaincompetitiveness in the labour market,many firms are now moving from ad hoclabour arrangements to firmeremployment contracts which offer acareer path and consideration forpersonal development and for work-lifebalance.

Laggard firms, on the other hand, are finding it difficult to attract workersand are under pressure by localgovernments and communities to clean up or close down.

Six steps to a higher purposeThe starting point is a genuine belief thatbusiness can do good in the world, andprofitably. This requires what JohnMackey, founder of Whole Foods Market,calls conscious leadership. Consciousleaders are motivated primarily by serviceto the firm’s higher purpose and creatingvalue for all stakeholders. They reject azero-sum, trade-off oriented view ofbusiness and look for creative, synergistic‘win approaches’ that deliver multiplekinds of value simultaneously.

A vision for a higher purpose needs tobe rooted in the particularities and

culture of the company. Such a purposegoes beyond CSR awards or positivemedia coverage. So what does doing‘good’ business actually mean in practice? We suggest the following six actions:

1. Rethink Explore and analyze your value chain toidentify areas of risk, opportunity, andaction. For many firms, this is a criticalfirst step that provides the data needed toidentify and understand where the firm ismisaligned with best practice options forsustainability, and aligned with marketopportunities and internal capacity.Rather than accept a boilerplatedefinition, determine what sustainabilitymeans for your own company, in yourown terms, as a guideline for all you do.

2. Re-vision Be committed to a crystal clear vision andpurpose. In the cases of Interface,Unilever, Whole Foods Markets and manyothers, this vision came from the CEO orfounder who personally drove it forward.For Ray Anderson, founder of Interface,the process was ongoing for 20 years.Before his passing, Anderson had builtthe capacity within Interface’s ranks tomaintain their path toward achievingtheir 2020 goals of zero waste and zerovirgin material usage.

3. Restructure Create a blueprint for applying the newvision. In the case of Interface, thisrequired a review of their processes to seewhere efficiencies could be found. This led to redesigning products so thatprocesses could be eliminated andmaterial usage and waste could bereduced. In turn, this led to arestructuring of equipmentspecifications, buying practices, andpositively engaging employees, suppliersand customers in the journey.

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4. Realign Strategy needs to be aligned withstakeholder needs, interests, andcapacities. Review your investments withan eye toward long-term engagement.Short-term CSR exercises should bereviewed and energies should be devoted a program that is aligned with the firm’svision and purpose. Internal energyshould be committed to engagingemployees and capturing their interest so that everyone owns the agenda behindthe vision.

5. Recalibrate Conduct a series of pilot projects that aremeant to test, tweak and prepare for asystemic recalibration over time. Interfaceis 20 years into their process. Wal-Mart andUnilever are both five years into theirs. Failures will occur, but firms that operatewith sustainable principles, that makeinvestments in energy, water and carbonreduction, tend to see positive paybacksover time. Interface, for example, hasreportedly reaped more than US$450m insavings in the last ten years from executing

on Anderson’s ‘Mount Sustainability’vision.

Eccles, Ioannou and Serafei, experts inintegrated reporting at Harvard BusinessSchool, have provided evidence that ‘HighSustainability’ companies significantlyoutperform their counterparts over thelong term. They say that firms performbetter on return on equity (ROE) andreturn on assets (ROA) and that thisoutperformance is more pronounced forfirms that sell products to individuals (i.e., business to customer [B2C]companies), compete on the basis of brand and reputation, and makesubstantial use of natural resources.

6. Remain committedFor firms in the manufacturing space, and who spend capital on equipment, the commitment is embedded themoment the asset is brought online andthe process is changed. Any activity thatinvolves the ongoing engagement,training, and measurement of peoplerequires more intensive and challengingprocesses that can be supported by the

culture of a firm as it aligns to theredefined mission. This is especiallydifficult for CEOs of publicly listed firmswho are required to be more sensitive tothe short-term demands and expectationsof investors. One way of dealing with thispressure is to follow Paul Polman’s examplein announcing that Unilever only wants toattract longer-term investors and not shorttermers such as hedge funds. For others thestrategy can be to indicate short-term winsalong the way such as reduced energy andwater costs.

What you want are “trustomers”Building a ‘good’ business demands thewholehearted adoption of ethical andsustainable business behaviours. Who wants to deal with a dishonest orinconsistent firm? Going beyond a basicCSR agenda to a higher purpose for yourbusiness builds trust.

Envero, a European brand consultancy,has examined the relationship betweencorporate behaviour, customer trust, andcustomer advocacy with more than 30,000adults, across 17 European countries and 14 industry sectors. They found in theirstudies one consistent customer truthacross all industries: People recommendcompanies and brands that they trust to behonest with them and that care about theirwell-being as customers. Customers decidewhich companies and brands aretrustworthy based on what they see of theircorporate behaviour.

Doing ‘good’ business is a challengingpath. But the investment will have positivereturns through better products, moreproductive employees, a better alignmentof brand and consumer needs and a legacyof trust.

● Originally published by Policy Innovationshttp://www.policyinnovations.org

This article is licensed under aCreative Commons License.

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■ Nearly a third of the world'seconomic output will come fromcountries facing “high” to“extreme” risks from the impactsof climate change within 12 years,according to the Climate ChangeVulnerability Index, an annualreport produced by UK-based

US$44trn by 2025 – meaningnearly a third of the globaleconomy would be comingunder increasing threat fromextreme climate-related events.

Countries in South and South-east Asia, which accounted forone-third of all “extreme” risknations, were likely to face anincreased risk of severe floodingdue to projected changes inseasonal rainfall. These wouldalso increase the likelihood ofsummer droughts and, in turn,

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risk analysis firm, Maplecroft.The index ranks thevulnerability of the world'scountries to the impacts ofclimate change by evaluatingtheir risk of exposure to extremeclimate events, the sensitivity oftheir populations to that

exposure and the adaptivecapacity of governments torespond to the challenge.

According to the report, thecombined GDP of the 67countries classed as facing “high”or “extreme” risks is projected tonearly triple from US$15trn to

Liberty and Justice is Africa’sfirst fair-trade-certified apparelmanufacturer, making tops andbottoms for brands like Prana,FEED Projects, Haggar andother large buyers in the UnitedStates. The company not onlyemploys hundreds of women,but focuses on an age group thatusually gets ignored in thegarment industry – women whoare over 30.

The workers at Liberty andJustice’s factories in Liberia andGhana are 90% female, and onaverage are paid 20% higherwages than their peers. “Wereally try to be worker-focused,”CEO, Chid Liberty, told FastCompany, “and we actually thinkthat’s what gave us a cuttingedge at the end of the day:

Committed to business with integrity

having really devoted workers.People don’t really believe inthese types of factories inAfrica, because they believethat African workers aren’tmotivated. I think that’shogwash.”

Soon after the first factoryopened in 2009, the company

Women workers at a Libertyand Justice factory.

hired a consultant whoinformed Chid Liberty that hehad done “pretty mucheverything” wrong, includinghiring an initial workforce ofwomen in their 30s, 40s, and50s. “For the typical garmentfactory,” Liberty says, “theaverage age is probably 23. I just assumed any able-bodiedperson could sew.”

Rather than replacing thewomen, Liberty decided to bitethe bullet and really invest inthe workforce he had in place, arisk that has led to competitiveproductivity levels, as well as aninspiring workplace vibe.

“These older women reallyset the culture of the LiberianWomen’s Sewing Project, ourfirst factory,” Liberty recalls.“They come to work an hourearly – we never asked them todo that – they pray and sing

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declining crop yields. The mostsusceptible populations in theseareas were in areas with highlevels of poverty, and where largepopulations had clustered onmarginal land such as floodplains or coastal regions incyclone-prone areas.

■ Renewable energy nowprovides one-fifth of the world’selectricity and has added abouthalf of the world’s new generatingcapacity each year since 2008.

Excluding big hydro dams,renewables got US$250bn inprivate investment in 2011 alone,adding 84GW, according toBloomberg New Energy Financeand ren21.net. The results weresimilar in 2012.

Asia’s energy revolution isgathering speed. China is theworld’s #1 energy user and carbonemitter, accounting for 55% ofworld energy-consumptiongrowth during 2000–2011. YetChina now also leads the world in

five renewable technologies(wind, photovoltaics, small hydro,solar water heaters and biogas)and aims to lead in all. Its solarand wind power industries havegrown explosively: wind powerdoubled in each of five successiveyears. In 2012, China installedmore than a third of the world’snew wind capacity and shouldbeat 2015’s official 100GW windpower target by more than a year.

India’s power generation is stillmainly coal-fired, but India’s coal

is only abundant, not cheap. Asin China, vibrant private-sectorentrepreneurship in renewablesshould be capable of faroutpacing the state-ownedindustries that dominate coaland nuclear power. India, theworld’s #3 wind power market,has already installed nearly fourtimes more wind than nuclearcapacity. Solar power too added1GW in 2012 and is taking offbriskly. (Rocky MountainInstitute)

together before they get onthe machines, they’re veryserious about the details ofhow your uniform shouldlook, and you just wouldn’thave got that out of a bunchof 19-year-old girls the firsttime. So, that’s a mistake thatturned out pretty well.”

In 2012, Liberty and Justiceexpanded into Ghana,launching the GhanaianWomen’s Sewing Project bytaking over an existinggarment factory there.“Ghana in 2011 was the fastestgrowing economy in theworld,” he says. “Greatbusiness environment.Amazing infrastructure forWest Africa. Very favourablebusiness conditions. If you’renot investing in Ghana, you’rekind of a weirdo.”

Liberty and Justice is nowadding 45 employees permonth to its Ghanaianfactory, with the goal ofreaching 700 employees by2014. The goal in Liberia,where they’ve recently movedto a bigger building, is 500.● Source: Fast Company,fastcoexist.com

The noise about the next big thing can make itdifficult to identify which technologies truly matter.The McKinsey Global Institute has attempted tosort through the many claims in order to identifythe technologies that have the greatest potential todrive substantial economic impact and disruptionby 2025. The technologies identified below havepotential to affect billions of consumers, hundredsof millions of workers and trillions of dollars ofeconomic activity across industries.

Source: Disruptive technologies: Advances that willtransform life, business, and the global economy –McKinsey Global Institute

Twelve potentially economically disruptive technologies

Mobile Internet Increasinglyinexpensive and capable mobilecomputing devices and Internetconnectivity

Automation of knowledge workIntelligent software systems thatcan perform knowledge worktasks involving unstructuredcommands and subtle judgments

The Internet of Things Networksof low-cost sensors and actuatorsfor data collection, monitoring,decision-making and processoptimization

Cloud technology Use ofcomputer hardware and softwareresources delivered over a networkor the Internet, often as a service

Advanced robotics Increasinglycapable robots with enhancedsenses, dexterity and intelligenceused to automate tasks oraugment humans

Autonomous and near-autonomous vehicles Vehicles thatcan navigate and operate withreduced or no human intervention

Next-generation genomics Fast,low-cost gene sequencing,advanced big data analytics, andsynthetic biology (“writing” DNA)

Energy storage Devices or systemsthat store energy for later use,including batteries

3D printing Additivemanufacturing techniques tocreate objects by printing layers ofmaterial based on digital models

Advanced materials Materialsdesigned to have superiorcharacteristics (e.g., strength,weight, conductivity) orfunctionality

Advanced oil and gas explorationand recovery Exploration andrecovery techniques that makeextraction of unconventional oiland gas economical

Renewable energy Generation ofelectricity from renewable sourceswith reduced harmful climate impact

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Peter Marsh is the former manufacturingeditor of the Financial Times and author ofThe New Industrial Revolution: Consumers,

Globalization and the End of Mass Production.Here he takes a look at the imminent

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The world stands on the brink of a newindustrial age, which will create many oppor-tunities in manufacturing for those with thetalent and imagination to capitalize on them.The changes will have a deep impact aroundthe world.

The effects will be apparent in the rich,established industrial countries – centred onWestern Europe, North America and Japan.However, the impact of the new industrial rev-olution will go much beyond the developedworld. For those “developing” economies thatin recent years have been starting to “catch up”with the lifestyles and standards of living seenin the well-off, Western nations, the period ofchange could well accelerate the advances.There will be opportunities to capitalize on aspectrum of ideas and new developments thatpromise to build on the platform for economicexpansion that – in many less developednations – is already in place. In such so-called“emerging economies” – led by nations such asBrazil, China and India – manufacturing hasplayed a key role in the past 15-20 years in deliv-ering a sizeable economic boost. The newindustrial revolution will give such nations a

new platform for further economic develop-ment. In some cases, the latest period of changecould enable certain regions of the world – suchas much of Africa and parts of South America,the Middle East and East Asia – to develop a newform of manufacturing that could trigger aperiod of valuable economic growth.

In examining the latest period of change,some historical context is required. The newindustrial revolution is the fifth key epochwhere manufacturing capabilities have experi-enced a sizeable shift. The first such changewas the first industrial revolution that usheredin the new era of manufacturing from the late18th century onwards, with the start of thisprocess taking place in Britain.

The first industrial revolution – with itsimpact speeding up during the 19th century –was why Britain took over as the biggest coun-try in terms of factory production just before1850. Britain’s position as number one in man-ufacturing lasted only for about 50 years. Byaround 1895, the United States had usurpedBritain as the leading country by this measure.It held this position until 2011, when Chinatook over.

The second revolution was the transport andcommunications revolution. It occurred fromabout 1850. It took shape around improvementsin ship construction; the emergence of railways(driven originally by steam power); and theinvention of electrical telegraphy.

The third revolution was a broad set ofchanges based around new scientific thinking.Key disciplines were mathematics, chemistryand physics. The shift had its impact from 1890onwards when, for the first time, electricity wasmade available on a ‘made to order’ basis. Thisnew form of power was capable of driving arange of disparate industrial processes. Linkedto this were changes in production technolo-gies, leading to (among others) cheap and plen-tiful steel and a broad spectrum of new chem-icals, among them drugs, dyestuffs andindustrial commodities such as sulphuric acid.

The fourth industrial revolution had itsimpact well into the 20th century. Taking shapefrom around 1950, and with its effects gather-ing momentum for 30-40 years after this, thefourth revolution was about computers andelectronics. It made possible the personal com-puter, high-speed data routers and the internet.

The impact of the first four revolutionswas largely confined to the rich countries,

as they are currently defined. It waswhy these countries – which were

the first to gain from the fruits ofmodern industrial developmentstarting from around 1800 – notonly leapt ahead in the earlyyears of this era but stayed ahead.The period in which these coun-

tries remained in the lead lasteduntil around 1990.

It was only after this that thechanges ushered in by all the four peri-

ods of industrial shift built up sufficientmomentum for their impact to be felt by coun-tries outside the main developed bloc. This ishow – over the past 15-20 years – the leadingemerging nations, led by China, started tobecome important industrial players for thefirst time in about 150 years.

This first industrial revolution was – with-out doubt – the most important of the five. Butof the four to have occurred since the latest one– the fifth – will be the one that will have themost impact. There is no single theme behindthe new industrial revolution. It is being drivenby nine main factors.

The nine elements powering the latestchange are: ● an explosion in the development of newtechnologies in fields from electronics to newmaterials, many of which can now be applied

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in combination much more effectively thanbefore; ● a greater facility in product customizationand ‘personalization’; ● a rise in the importance of manufacturingsectors covering narrow area of products andservices – the so-called “niche” industries; ● greater use of global networking – the com-ing together of supply chains for goods andinformation pathways for ideas; ● the enhanced importance of ‘clusters’, orconcentrations of businesses, located in spe-cific localities, which can interact togethereffectively, while often also being linked to col-laborators around the world via global net-working;● the greater participation in the world’smanufacturing operations of emergingeconomies, such as China and India; ● the bigger influence of environ-mental factors in determining theoperations of manufacturers, whetherthese concern the types of productsthey make, or the processes they use tocreate them; ● the larger use of services to help sup-port manufacturers’ core activity in makingproducts; and, finally, ● a bigger role for ‘maverick manufacturers’ –people with unorthodox ideas who are notafraid to go against the norm but who oftenneed at least some support from others toachieve their aims.

Most of these themes are, in themselves, notnew. But the degree of success by manufactur-ers in applying them – often in combination –will separate out the winners from the losers asthe new industrial revolution gathers pace. Bymaking use of some, if not all, of these nine fac-tors, a range of industrial companies based inhigh-cost nations will find they emerge, overthe next 10-20 years, in a stronger condition.

Businesses in a good position to exploitthese ideas include big and small groups, well-known names as well as companies barelyknown outside their own industrial sectors.They include: ● Luxottica, a Milan-based group that is theworld’s biggest maker of spectacle frames andproduces its items in a highly diverse and high-tech set of processes carried out in productionbases in Italy, China and the US; ●Trumpf, a German business that is the world’sbiggest maker of laser-cutting machines formetals, and whose competitive advantages arecombining technological advances with theability to connect up with thousands of cus-tomers globally; ●ABB, a Swiss-Swedish engineering giant that

makes new forms of automation plus electric-ity distribution hardware; and ● Whitford, a US maker of fluoro-polymercoatings for an immense array of applications,from oil platforms to the food industry.

Companies from the so-called developingworld which look as if they will likewise do wellfrom the new period of change include ● BOE Techonology Group, a fast-expandingChinese company that is a world leader in flat-screen electronic displays; ●Natura, a Brazilian pioneer in cosmetics andhealth products; ● Medical Diagnostech, a South African pro-ducer of medical diagnostic kits; and ●Tata Motors, the Indian multinational auto-motive manufacturing company.

What will be important for business peopleand policymakers will be first to understandthe nature of the new industrial revolution,and to spot the themes behind it. The secondkey step will be to put in place policies andideas that will help entrepreneurs to make themost of the changes. Among the most impor-tant policies will be those that: ● encourage efforts to inculcate an interest incombining new technologies in a sophisticatedway;

● develop new ideas about making the mostof existing and emerging business clusters;and ● help enterprises to fit in with global supplychains and information networks so that busi-nesses in one corner of the world can link upeffectively with those elsewhere.

The companies and countries that do allthese things most effectively will have a greaterchance than the others to emerge from thechanges of the next 20 years as potential globalwinners whatever other challenges the 21stcentury brings.

services

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The New IndustrialRevolution:Consumers,Globalization andthe End of MassProduction by Peter Marsh waspublished in June2012 by YaleUniversity Press.


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Africa’s need to aggressively pursue the in-dustrialization path has become more com-pelling in light of the need to sustain currentgrowth standards. With carefully developedbackward and forward linkages, industrializa-tion has the potential to diversify economiesand reduce exposure to external shocks. Atthe United Nations Economic Commissionfor Africa (ECA), we are working the case forindustrialization and we do not apologize forthat. We are convinced that, if properly done,it opens doors to address most of Africa’smany challenges. It has the potential toreduce poverty, deal with the inequality pro-voked by the rent-seeking practices persist-ing in many countries, and it can allowleapfrogging into a green economy model.Several myths are bandied around about whyAfrica’s industrialization has been stunted. Letme address a few fallacies that continue toplague Africa’s industrialization drive.

MYTH 1: industrialization is a fashionable development word that will soon be forgottenThere continue to be strategic and policychanges in the posture taken by African statesregarding development strategies. We remem-ber buzzwords like ‘structural adjustment’,‘trickle-down effect’ and ‘poverty reductionstrategies’ that influenced national policy di-rection. Although industrialization has alwaysbeen in development literature, this is the firsttime it is likely to take centre stage. The call forindustrialization is now linked to a structuraltransformation of the state. The Plan of Actionfor the Accelerated Industrial Development ofAfrica (AIDA), supported by the African Union,ECA, the African Development Bank and theNew Partnership for Africa's Development(NEPAD), demonstrates how the link betweenindustrialization and structural transforma-tion is being taken seriously.

AIDA is based on four pillars – usingAfrica’s own natural resource endowment as abasis for industrial transformation; develop-ing an infrastructural system including energyand transportation; increasing research anddevelopment and the adaptation of technol-ogy and promoting private sector develop-ment especially the role of small and mediumscale enterprises. It is hoped that these en-ablers will lead to the structural transforma-tion of the continent’s economies. In the 1970s,the Republic of Korea had neither the skill, norraw material for developing a world-class ship-building industry but decided to follow thispath based on a well-developed policy. Today,the Republic of Korea is one of the three

largest shipbuilding nations. We need to thinkabout examples like this. Although we needAfrican solutions and priorities, we can learnfrom such successes.

MYTH 2: industrialization is all we need to developAfrican countries must begin to see industri-alization as a tool for the social and economictransformation of their societies, with struc-tural transformation as the end result. DengXiaoping’s transformation of China’s econ-omy is an example of the need to address in-dustrialization as part of a wider integratedand intergenerational process of develop-ment. In this regard, I define structural trans-formation as a significant change in thesectoral composition of GDP with the shareof the primary sector in employment andoutput shifting to industry and modern serv-ices. Structural transformation can be realizedby giving attention to key developmental ele-ments, one of which is industrialization. We

have to still deal with a demographic chal-lenge and transform it into a dividend, not tomention the social cohesion that shouldresult from reducing inequality, embracingdiversity and increasing human security andinclusive governance.

MYTH 3: African countries have triedindustrialization before and it failed, so why now?In the 1960s, newly independent Africa emu-lated other regions of the world in undertakingimport-substituting industrialization. This ledto some remarkable progress but was ulti-mately stymied by the limits of the model andglobal political economy. This is why, today,Africa should be mindful of a very differentglobal context. Africa needs alternate modelsthat play to its strengths and satisfy the needfor transformation. Brazil’s Bolsa Familia pro-gramme, which took 30 million Brazilians outof poverty, was designed to achieve economicgrowth with social equality. With up to 90% ofAfricans still heavily reliant on the agriculturalsector, commodity-based industrializationspeaks to our strength. Commodity-based in-dustrialization also offers immediate scope forvalue addition and plenty of opportunity forexploiting consequential linkages. Botswana’sdecision to add value to rough diamondsbefore exporting them ensured an extraUS$6bn in diamond sales are now goingthrough the country’s financial centres. Thiscreated new jobs for its youth, whilst boostingthe infrastructure and tourism sectors.

MYTH 4: It is too late for Africa to industrialize without polluting the environmentThe world has changed since the time of theIndustrial Revolution. Coming late to the clubgives Africa the opportunity to industrializedifferently. It is not about privileging export-oriented or import-substitution models. Thenew industrialization model must be closerto the commodities’ production centres, lookat the leapfrogging technological potentialand have the African growth market in mind.It should ensure strong forward and back-ward linkages and of course, understand thesophisticated global value chains.

MYTH 5: Africa’s current economic growth will lead to job creationBased on demographic growth projections,Africa will need to create up to 10 millionformal jobs annually as more young peopleenter the job sector. Current economic growthmodels do not create enough modern jobs.

Carlos Lopes on theimportance ofindustrialization forAfrica’s development

CARLOS LOPES was appointed by Secretary-GeneralBan Ki-moon as Executive Secretary of the UnitedNations Economic Commission for Africa, inSeptember 2012. He previously served as ExecutiveDirector of the United Nations Institute for Training and Research, and as the United NationsDevelopment Programme Resident Representative inBrazil. He joined the UNDP in 1988, following servicein the public sector of his native Guinea-Bissau.

Bustingthe

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In fact, the fastest growing African economiesalso have the highest levels of youth unem-ployment. Although growth is robust in manycountries, it is propelled by internal con-sumption that does not benefit all. To reversethis trend, proper planning should focus onmodernizing the economies through moremanufacturing production taken from otherparts of the world where unit values are in-creasing fast and start by positioning Africa inrelation to its natural resources and potentialrenewable energy assets. These, combinedwith a younger, more educated, urbanized andconnected workforce, make Africa quiteunique.

MYTH 6: investors are not attracted to ‘risky’ AfricaIntra-African investment has, since 2007,been growing at a 32.5% compound rate, withSouth Africa leading with US$18bn investedacross several sectors, followed closely by Morocco and Nigeria. In 2011, the rate ofreturn on inward foreign direct investment(FDI) in Africa (9.3%) was the highest com-pared to other regions of the world (8.8% inAsia and 4.8% in the developed economies).This is important because it means Africansare not just asserting themselves in a politi-cal narrative. They are also investing more intheir own continent. Fortunately, others are

following. FDI will reach US$50bn this year,an all-time high. More people now realizeAfrica is not as risky an investment decisionas it may appear. In fact, it has the best returnon investment. Africa needs to better brandand market itself.

In conclusion, if the news on growth isgood, Africa wants and needs more to be ableto deal with the challenge of having to indus-trialize and grow when its population andcities are growing quicker than any previoushistorical experience. It is high time we turnthe story of the ‘no hope’ to ‘rising’ continentinto meaningful change and prove the scepticswrong.

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“To achieve inclusive andsustainable industrialdevelopment, all of UNIDO’stools will be used”

Interview with LI Yong, new Director General of the UnitedNations Industrial Development Organization (UNIDO)

KEYNOTE

Since taking office in June this year, you have travelledto all the regions of the world to meet withrepresentatives of member states and leaders ofindustry. One of the things that you have stressed inthese meetings is your vision of ‘inclusive andsustainable industrial development’. Could youexplain what that is?When I went to the United Nations General Assemblydebate in September 2013, I listened carefully to theleaders’ statements about the three dimensions ofsustainable development – economic, social andenvironmental – and the call for a comprehensive listof Sustainable Development Goals. I was impressedthat there is a global agreement that our societies and

economies must find a path of sustainabledevelopment if we want to tackle the challenges of ourtimes. How else can we meet the growing challenges ofjob creation particularly amongst our youth; advancegender equality and women’s empowerment; addresssocial issues, like education and health; and findsolutions to all the looming environmental issues onour planet?

How can we possibly achieve all these developmentgoals? For UNIDO, poverty eradication is all-important. This is the crucial and urgent task, and allmember states have agreed that it can only be achievedthrough strong, inclusive, and sustainable economicgrowth, and the effective integration of the economic, ➤

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social and environmental dimensions ofsustainable development. UNIDO wants to put theemphasis on industrialization because industry is theeffective driver of economic and social development,and thus the basis for achieving all the other goals. We believe that industry is a primary creator of jobsand the motor for growth and prosperity worldwide.

The international community is working very hardto achieve a new set of strategic development goals forthe coming decades, and UNIDO’s work, our goal, ourmandate, should be in line with international efforts.UNIDO will focus on supporting inclusive andsustainable industrial development.

I take “inclusive” to mean that all countries, allpeoples, the private sector, civil society organizations,

multinational development institutions, and all partsof the UN system, are all partners with UNIDO inpromoting industrial development to achieve theeradication of poverty. There should be equalopportunity for all peoples to create industries, tocreate manufacturing activities. All countries shouldhave this kind of opportunity, and the benefitsproduced or generated by this process of industrialdevelopment should create shared prosperity. The UNslogan which I support very much is ‘Leave no onebehind’, and that is relevant to us, to UNIDO, when wepromote industrial development. By participation andsharing, no one will be left behind.

As for the meaning of “sustainable” in this context,we are clear that industry generates the wealth needed

“The benefits produced or generated by this process of

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to address critical social and humanitarian needs. At the same time, however, it is also clear that thisgrowth must urgently be decoupled from increasedraw material use and negative environmental impacts.As a key driver of this growth, industry must play itspart by becoming significantly cleaner and vastly moreenergy- and resource-efficient, to guarantee the health,prosperity and security of our peoples. In short, whenwe promote industrial development andmanufacturing activities, we should try to incorporatethe environmentally sound productionmethodologies available to us, such as energyefficiency, clean production technologies, reducedemissions and more effective use of resources. Can you explain the relevance of partnerships as a wayto create the enabling environment for this inclusiveand sustainable industrial development?To achieve inclusive and sustainable industrialdevelopment for our member states, all of UNIDO’stools in its own tool-box will be used. In addition, weneed to develop stronger partnerships to make ourdevelopment impact even bigger. This means furtherexpanding the strategic partnerships that we have nowwith our member states, with the UN family members,and also with private sector companies, with whom weare developing the Green Industry Platform and manyother important programmes.

These kinds of partnership should be expanded,because industrialization is not about building one ortwo factories, or just one or two assembly-lines.Industrialization is a holistic movement that helpscountries to rise from a lower level of development toa higher level. This is a set of processes that is beyondthe capacity of any single institution to support fully,and requires strong partnerships with all relatedstakeholders, including bilateral and multilateraldevelopment agencies, international financialinstitutions, the private sector, academia and civilsociety.You have stressed the importance, the centrality ofindustrial development. Is this a message that

resonates with the stakeholders that you have beenmeeting?I have recently travelled to Africa, to the African Unionheadquarters in Ethiopia and to South Africa. Leadersof the African Union told me that industrialization ishigh on the agenda for Africa in the next 50 years. That is important news. They told me two things. One is that they do not want to depend indefinitely onofficial development assistance. Second, they want touse their natural resources more effectively. Onlythrough diversifying their economies andtransforming towards manufacturing, adding value totheir natural resources, can they create jobs, createwealth and raise the living standards of their people.For more than ten years, some of the countries inAfrica have achieved relatively high growth rates. For example, last year Ethiopia’s growth rate was 9.7%,almost the fastest growth rate in the world. That groupof countries is moving up.

At the moment, two-thirds of the Least DevelopedCountries are located in Africa, mainly dependent onagriculture. They can go one step further and we canhelp them to develop, to create higher value added,more output, and then on to manufacturing, food-processing, food-packaging, leather-processing, wood-processing, furniture making, all these kinds ofmanufacturing and industrial development. Thesecountries will develop. This is their leaders’ vision, notone only promoted by UNIDO. I was so glad to hearthat and very happy that UNIDO has been invited toparticipate in this process.

The financial crisis taught us many lessons. One ofthem is that we should re-focus on the development ofthe “real sector”. This is not a developing countries’concept, nor a middle-income countries’ concept. This is accepted by many countries. I am very happy tosee that many advanced countries are re-focusing onindustrialization. They are promoting some newpolicies, supporting manufacturing, employment,small and medium-sized enterprises and exports.When I went to the European Union, I was pleased

industrial development should create sharedprosperity”

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when they told me that industrialization is also apriority for them, just as the African leaders have toldme before.

Why do countries now all accept that industry iscrucial? Look at history. In the two or three hundredyears since the start of the industrial revolution, a largenumber of countries have transformed themselvesfrom agriculture-based economies to industrializedones. And then, in the 20th century, countries likeJapan and the Republic of Korea moved very fast afterthe Second World War, and have now becomemembers of the Organization for EconomicCooperation and Development. One of the mostuseful policy tools in this context was manufacturing.What created the ‘miracle’ of the South-East Asiancountries? Manufacturing, industrial development.Those ‘tigers’ and ‘dragons’ moved quickly up to themiddle- and high-income country level. China learntfrom them in the 1980s, and we opened up a very, verypoor country with a big population to the world. You can’t imagine that in 1978 GDP per capita atcurrent prices was US$228, and now, after more than30 years of opening-up reforms, last year GDP percapita was over US$6,000. What was the driving force?Agriculture? No. We transformed from an agricultural-based to a more industrialized country in 30 years.Regarding the concept of inclusive and sustainableindustrial development, some might say that this is acontradiction, that industrial development requiresresources, which are becoming scarcer, and produceswaste, which is becoming a bigger threat to the futureof the planet. How would you respond to this? This is a very good question and an importantchallenge. UNIDO is promoting inclusive andsustainable industrial development to try andovercome the negative impacts of industrialization.When we are manufacturing products to use and totrade, and for growth, we need to consume rawmaterials. We need to use energy, water, electricity, oiletc, and we create some pollution – damaging forestsand arable land. The international community is

working very hard to avoid such negative effects, toreduce them and to eliminate them. But it is, and willremain, a learning process.

Look at the Western countries; for instance, Londonin the United Kingdom. When I was young, I learntthat it was the smoky city, the city of smog, but now it’s so clean. They could do it. It proves we can do it. They learnt a lesson, and now you don’t see these kinds of things happening, yet industry is still there,flourishing. Many countries are developing theirindustry on a very big scale but now they can still keepa clean environment. Do you think that improvements in resourceefficiency and energy efficiency, and the scaled up useof clean energy can offset the impact of the growth inthe world’s population?Industrial development is an inevitable process. For any country to move up from low levels ofdevelopment – and high levels of poverty – to anadvanced level of development, they need industrialdevelopment. Many countries that have alreadyadvanced still have clean air. What makes thispossible? The answer is technology. We don’t only haveone choice, industry or pollution. We can move aheadwith an effort to reach truly sustainable growth. For achieving this, South-South cooperation will be an important complement to the huge scaling up ofinvestments required for infrastructure and industrialgrowth. We therefore must create the necessaryenabling policies and institutional environment toallow for more South-South knowledge exchange sothat we can all learn from each other’s experiences andcreate more opportunities for investment, jointventures and trade.

The challenge is to move towards sustainableproduction and consumption patterns, while stillenjoying the benefits of economic growth and withoutexacerbating social tensions. Policies and technicalprogrammes are needed to realize the idea andconcept of sustainability across all its dimensions. To achieve these goals, UNIDO focuses on

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implementing programmes and providing policyadvice to support the building of industrial capacitiesand qualitatively improving industrial capacities. The thematic focus may vary from creatingopportunities in agribusiness, to building quality andstandards infrastructure, to supporting the creation ofindustries delivering environmental goods,depending upon the specific requirements of thecountries concerned. But the common goal remainsthe same: achieving inclusive and sustainableindustrial development.

To sum up, all countries have realized thatindustrial development is a necessity for achievingdurable and resilient economic growth, but if industryis to be sustainable in the long run, it must undergo a

rapid transition. In short, it must quickly adopt abusiness model that enables it to produce more of thegoods and services needed by an expanding worldpopulation, while using ever fewer resources andproducing ever less waste and pollution. Nobodyshould be left behind in this process. We must makesure that this industrial growth is inclusive andprosperity is shared. UNIDO wants to lead in forgingpartnerships, where governments, the private sectorand other actors work together to create the enablingenvironment needed for this transformative changetowards this goal of inclusive and sustainableindustrial development. If we all work together onthis, I believe that we will be able to eradicate povertyrelatively quickly. ■

LI YONG has had an extensive careeras a senior economic and financialpolicymaker. As Vice-Minister ofFinance of the People’s Republic ofChina and member of the MonetaryPolicy Committee of the CentralBank for a decade, LI was involved insetting and harmonizing fiscal,monetary and industrial policies, andin supporting sound economicgrowth in China. He accorded greatimportance to fiscal and financialmeasures in favour of agriculturaldevelopment and small andmedium-sized enterprises, thecornerstones for creating economicopportunities, reducing poverty andpromoting gender equality. sustainable industrial development”


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Latin America is undergoing something ofan industrial policy revolution of late. Havingditched its destructive neoliberal policiesfrom 2000 onwards, and then having seen thesupposed efficient-market foundations of theentire neoliberal model effectively blownapart by the global financial crash of 2008, itwas inevitable that a major policy change wasin order. Yet, today, the speed with which anew industrial policy movement is takingplace has surprised many observers. Thesenew policies are being informed both by im-portant prior experience in Latin America,principally the import substitution industri-alization (ISI) policy period (1950-1980), aswell as by significant ‘best practices’ fromelsewhere, notably from China, Italy, the Re-public of Korea, Scandinavia and especiallyfrom Latin America’s own star performer,Brazil.

Perhaps the most interesting aspect of therebirth of industrial policy in Latin America,however, is that there is a very definite focuson the specifically local aspects of industrialpolicy formulation and implementation.This specific focus arises for two reasons.First, many governments in Latin Americahave deliberately chosen to decentralizemany of their activities and operations. Localservices provision is not only more cost-ef-fective. It also serves to promote greater ac-countability and transparency ingovernance. Decentralization has also beenseen as a way of more directly involving

ethnic and social groups long marginalizedunder authoritarian rule.

Second, there is also the growing accept-ance that the continent’s de facto local eco-nomic policy model for many years –microfinance – has been a disaster. The vastmicrofinance industry has absorbed scarce fi-nancial flows which were then overwhelminglyrecycled into millions of the very simplestforms of informal ‘no-growth’ retail and streettrade, handicrafts and petty services. At thesame time, growth-oriented small andmedium-sized enterprises (SMEs) were in-creasingly ‘crowded out’ of the market for fi-nancial support, while also struggling tocompete against rafts of informal microenter-prises that pay no tax, offer bare survival wagesand have no interest in ensuring decent healthand safety conditions at work. The overarch-ing result has been the de-industrialization, in-formalization and primitivization of Latin

America’s local economies. Even the neolib-eral-oriented Inter-American DevelopmentBank now laments the fact that Latin America’sfinancial system channelled so much of thecontinent’s scarce financial resources into in-formal microenterprises and self-employmentventures, a market-driven process it now con-cedes achieved nothing more than “the pul-verisation of economic activity into millionsof tiny enterprises with low productivity”.

Ecuador is perhaps the most obvious ex-ample of the new counter-trend towards pro-active local industrial policy. Its centralgovernment under President Correa hasmade a determined effort to devolve powerand resources down to local governments,and so much closer to poor and marginalisedpeople. Local governments are now thecentre of much pro-active industrial devel-opment activity. One policy common tomany parts of Ecuador is to establish farmer-owned cooperatives linked to new state-of-the-art food processing units. Theseprogrammes not only help to ensure qualityaffordable outputs for local consumers, theuse of appropriate environmentally sensitivepackaging and phytosanitary certification toenable export, but also ensure that the bulkof the value added generated goes back downto the basic producers, not up to rich inter-mediaries or out to shareholders of multina-tional corporations.

In Brazil, we are all aware of the impres-sive track record of the state development

Milford Bateman suggeststhat new forms of industrialpolicy are (re)emerging,including at the local level,and are beginning totransform the continent’sindustrial structure in apositive direction

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bank, BNDES. But it needs to be remem-bered that BNDES also has a very importantrole to play in local industrial development,through its local branches and pro-grammes. In fact, BNDES has long pro-moted many new innovative SMEs throughits loan programmes. It also increasinglypromotes SME suppliers through the localcontent agreements that it attaches to itsloans to larger companies. A new generationof community development banks are alsohelping to support sustainable new busi-nesses in many communities. Fundingcomes from higher levels of government inorder to support the poorest regions and lo-calities that otherwise might not be ablemobilize as much as they need locally inorder to do a good job.

It must also be remembered that Chile’slong-held status as the ‘role model’ for ne-oliberal policies is based on a myth. TheChilean government actually established avery impressive range of ‘interventionist’local/regional state-led infrastructures and,moreover, generously financed these insti-tutions through the very heterodox policy ofretaining state ownership of the world’smost profitable copper facility, Codelco.Thus, both Fundación Chile and CORFO(Corporación de Fomento de la Producciónde Chile) were able to patiently develop andfinance important new industrial enter-prises and enterprise clusters, and evenentire agro-industrial sectors from scratch,

the most famous examples being farmedsalmon and soft fruits. Most recently, theChilean government has established an in-novation fund to support SMEs that is man-aged locally and is directly financed by itsrevenues from Codelco.

Leftist governments in Bolivia andVenezuela have also developed innovativelocal industrial development policies, notablyinvolving the establishment of cooperatives.The aim here has been to use oil and gas in-dustry revenues to establish ‘local productionfor local consumption’ measures that directlyserve poor communities for the very firsttime. Thanks to traditionally weak bureau-cratic capacities and resistance from the en-trenched private sector, many problemsremain. But these new forms of local indus-trial development policy, allied to industrialdemocracy-building measures, have never-theless demonstrated much potential to re-

spond to genuine need, while also promot-ing greater equality and social justice.

Finally, even in traditionally centralizedand neoliberal-oriented Colombia, local gov-ernments and provinces were allowed to ex-periment with novel forms of industrialpolicy. The city of Medellín, for example, haspioneered many new forms of engagementwith and support for local industry and thecommunity, helping to create many new in-dustries and service sectors as its traditionaltextile industry declined. Crucially, the Mu-nicipality of Medellín was willing to take aleaf out of Chile’s book and retain ownershipof Empresas Públicas de Medellín (EPM), themain utilities provider in the province of An-tioquia, resulting in 30% of EPM’s profitbeing channelled into the Municipality’sbudget. This largesse was creatively used tofinance a wide variety of programmes thatupgraded the region’s industrial and servicebase, as well as to (re)establish Medellín asone of Latin America’s most exciting touristdestinations.

Latin America has embarked on a newvoyage of discovery. New forms of industrialpolicy are (re)emerging, including at the locallevel, which are beginning to transform theindustrial structure in a very positive direc-tion. There are many optimistic portents tosuggest that we might be seeing the start of anew, much more positive, ‘bottom-up’ devel-opment episode in Latin America’s economichistory.

MILFORD BATEMAN is afreelance consultant on localeconomic development and,since 2005, Visiting Professorof Economics at Juraj DobrilaPula University in Croatia. Heis the author ‘Why Doesn’tMicrofinance Work? TheDestructive Rise of LocalNeoliberalism’, published in2010 by Zed Books.

Pictures (left toright): Worker at asmall enterprise inMasaya, Nicaragua;Family companymanufacturingponchos, La Paz,Bolivia; Processingmanioc at a ruralcooperative innorth-east Brazil.

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Industrial symbiosis is recognized across theworld as a driver of green growth, acknowl-edged for its contribution to eco-innovation,job creation, securing critical materials and re-source efficiency. However, although matur-ing in many developed economies, includingthe United Kingdom (UK), Finland, Denmarkand Belgium, the developing world has yet tolearn about the benefits of such an approach.

Industrial symbiosis has the potential toyield significant economic, environmentaland social benefits, yet requires no interna-tional agreements and only modest invest-ment from governments to make it work atscale. The principle behind industrial sym-

Peter Laybourn, Chief Executive of InternationalSynergies Limited, looks at how developing

countries are starting to use the industrialsymbiosis approach to support a speedier

transition to sustainable development.

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biosis is simple; instead of being destroyed,undervalued as a by-product or sent to land-fill, waste streams and other under-utilizedresources generated by industrial processesare redirected for use by companies typicallyfrom different sectors, providing a mutualbenefit or symbiosis.

Although it is easy to focus on materialswhen discussing industrial symbiosis, thereal opportunities lie in applying themethodology in a wider, more holistic way.For example, the approach can indentifyreuse outlets for effluent or used water sup-plies, as well as potential energy streams. Italso offers a means to optimize the capacityof industrial assets and logistics, and increasethe transfer of technology and eco-innova-tion – in effect increasing the productivity ofall available resources, which in turn gener-ates economic and environmental benefits.What is often an established practice or so-lution for one industry sector can be an in-novation for another.

The facilitated modelThe approach sounds simple enough, how-ever, unlocking the value embedded withinindustrial resources requires more thanmerely brokering a transaction between twoor more companies. While there are anumber of different models of industrialsymbiosis, to date, the facilitated model of in-dustrial symbiosis is the most successfulthanks to its ability to be applied at scale andto generate rapid results. It is this facilitationelement, together with the engagementmodel, that is key to bringing together pro-ducers and users of waste resources with in-novators and entrepreneurs, especially asmost industrial symbiosis transactions occurbetween partners outside traditional supplychains.

For example, International Synergies in-troduced the National Industrial SymbiosisProgramme (NISP) in the UK in 2005 and,within seven years more than 15,000 compa-nies were participating. Together they gener-ated just over €1.7bn in additional sales, cutcosts by over €1.2bn as a whole, reducedcarbon emissions by 39 million tonnes anddiverted 45 million tonnes of material fromlandfill. The NISP also saved or created over10,000 jobs.

Since then, the NISP has been globally ac-knowledged; in 2011, the World Wide Fundfor Nature (WWF) credited the NISP as beingone of the world’s top 20 Green Game Chang-ing Business Innovations, while, in the sameyear, the Organization for Economic Devel-

opment and Cooperation cited industrialsymbiosis (à la NISP) as a means of “systemicinnovation, vital to future green growth”.

Around the worldThe experience of implementing the NISP inthe UK has enabled International Synergiesto evolve the model for application aroundthe world. China, for example, is in theprocess of implementing its third regionalscale industrial symbiosis project with oursupport – the most recent being establishedin Jiangsu province. Both Brazil and Turkeyalso have established programmes and wehave most recently begun work in WesternCape in South Africa, again building capacityto develop a programme based around theNISP model.

Across Europe, International Synergies isworking with in-country partners to supportimplementation in, for example, Belgium,Finland, Hungary, Italy, Northern Ireland andPoland. Indeed, Europe is starting to embraceindustrial symbiosis at scale; it is written as apolicy recommendation within the EuropeanCommission’s Roadmap to a Resource EfficientEurope and subsequently championed as anapproach for making immediate resource andeconomic gains by the European Resource Ef-ficiency Platform, a high-level working groupled by the Commissioner for the Environ-ment, Janez Potočnik, which helps turn polit-ical will into action on the ground.

Although industrial symbiosis is not yetwidely acknowledged as a mainstream politi-cal instrument to help develop sustainablegreen growth in developing economies, thismight be about to change. The historical lackof awareness of industrial symbiosis hasstarted to be addressed by internationalforums such as the third Global GreenGrowth Forum (3GF) held in Copenhagen inOctober 2013. At 3GF 2013, International Syn-ergies hosted a session on industrial symbio-sis that was attended by representatives fromacross the world, including developing coun-tries from Africa and Asia. International in-stitutions that are accustomed to working indeveloping countries, such as the World Bank,are also beginning to recognize the benefitsthat industrial symbiosis can bring.

In many ways, it is even more beneficial tointroduce industrial symbiosis to developingeconomies as it provides an opportunity to‘get it right’ from the beginning. In thoseeconomies that have developed in the tradi-tional linear way, there is a need to ‘retrofit’industrial symbiosis in order to move thosecountries towards a circular economy.

Who pays?However, based on experience of supportingindustrial symbiosis schemes all over theworld, perhaps the largest barrier to wide-scale implementation is a lack of cross-sectorworking, which prohibits the ‘flexibility’ in-dustrial symbiosis requires. Internal siloswithin governments and industry make it ex-tremely difficult to categorize industrial sym-biosis, which in turn begs the question – whopays? Some governments provide investmentthrough their climate change committees,others through their environmental depart-ment (including the UK through hypothe-cated landfill tax), while in Denmark theirnational industrial symbiosis programme issupported by the Ministry of Business andGrowth.

Further, given the substantial gains busi-nesses achieve through industrial symbiosis,some governments believe companies them-selves should pay; despite the same govern-ments receiving more taxes from saidbusinesses as a direct result of them becomingmore profitable. In the UK for example, theconsultancy company, Manchester Econom-ics, found that the government received be-tween €6 and €9 in direct taxation for every €1invested in the NISP. All our projects to datework on a public private partnership modelwith public investment and a private sectordelivery agent driving business engagement.Experience has shown that removing publicinvestment and asking businesses to pay, re-sults in a rapid reduction in the number ofcompanies willing and able to take part, espe-cially small and medium-sized enterprises.Regrettably this is what is currently happen-ing in the UK, with investment for the NISPexpected to finish in March 2014. Ironically,having pioneered industrial symbiosis back in2005 through its investment in the NISP, thecountry looks set to fall behind the rest ofEurope by not having a programme at all.

However, there is a lot to be positive aboutthe future for industrial symbiosis. Some pol-icymakers and regulators are beginning to in-tegrate industrial symbiosis into spatialplanning, economic development and sus-tainability policies. Policies and regulationscan help foster the conditions that incentivizeindustrial symbiosis and resource-efficientbehaviour by clarifying definitions and re-sponsibilities, and providing predictabilityand reliability for companies to plan. It issurely now only a matter of time (and hope-fully not a long time) before industrial sym-biosis is adopted as mainstream policy andpractice in developing countries.

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A recent International Monetary Fund (IMF)report gave Peru a glowing assessment,describing the country’s macroeconomicperformance over the past decade as“exceptional”. The IMF’s report states, “After a period of prudent macroeconomic policies,ambitious structural reforms, positive terms of trade and large direct foreign investment, Peru emerged as one of the fastest growing and most stable economies in the region. Over the period 2002−12, the Peruvianeconomy almost doubled in size, real Gross

Domestic Product grew at an average annualrate of 6.3% (the highest 10-year averagegrowth in Peru’s history), and the annualinflation rate fell to 2.75% on average(the lowest in Latin America).”

Historically, the country’seconomic performance has been tiedto exports, which provide hardcurrency to finance imports andexternal debt payments. The countryis one of the top global producers ofsilver, copper, zinc, tin and gold.However, although the export-ledmodel has provided substantialrevenue, it has proved difficult forPeru to achieve self-sustainedgrowth and a more egalitariandistribution of income.

Over recent decades, the country’seconomic policy has undergone aprofound change in direction. The1968–1975 government of Juan VelascoAlvarado introduced wide-ranging reforms,including agrarian reform, theexpropriation of foreign companies, theestablishment of an economic planningsystem and the creation of a large state-owned sector. Although these measuresfailed to achieve the objectives of incomeredistribution and the end of economicdependence on developed nations, therewas no significant change in direction untilthe 1990s. Since then, the authorities havepursued fiscal consolidation, tradeopenness, exchange rate flexibility, financialliberalization, higher reliance on marketsignals and prudent monetary policy.

Over the last decade, thesemacroeconomic policies, together with a

Latin America’s star performer

PeruCOUNTRYFEATURE

Head of state: Ollanta Humala, a formerarmy officer, and leader of the PartidoNacionalista Peruano, was elected Presidentafter winning 51.5% of the vote in a second-round run-off election in June 2011.Population: 30 million Urban population (% of total population):77.24Internet users (% of total population): 36.5Ease of Doing Business rank (out of 189economies) 2013: 39GDP – composition by sector (2012 est.)agriculture: 10%, industry: 35%, services: 55%Main industries: mining, metal fabrication,petroleum extraction and refining, naturalgas, fishing, glass, textiles, clothing, foodprocessingMain exports: Fish and fish products, copper,zinc, gold, silver, tin, crude petroleum and by-products, lead, coffee, sugar, cotton

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favorable external environment, notably aspectacular surge in global commodity prices,have revitalized the economy. The growth ofan affluent middle class has driven up privateconsumption growth and the country hasbeen able to diversify its export basket toinclude textiles and farm produce likeartichokes and mangoes.

So far, the effects of strong growth haveyielded an important decline in poverty rates.According to the World Bank, the nationalpoverty rate fell from 48.5% in 2004 to 27.8%in 2011. However, disparities across thecountry remain high, particularly betweenrural and urban areas.

The challenge facing President OllantaHumala, who began a five-year term in July2011, has been how to extend the benefitsof the country’s robust economicperformance to all Peruvians, particularlythose from traditionally disadvantagedindigenous and rural communities. In hisinaugural address to the Congress, Humalasaid he would “dedicate all of my energy …so we once and for all erase from ourhistory the damaging face of exclusion andpoverty [and] build a Peru for everyone.”

President Humala has created orbolstered some social programmes,fostered job creation programmes and

provided greater access to financing toencourage decentralization and enterprise inresource-poor areas. The IMF’srepresentative in Peru, Kevin Ross, recentlyremarked approvingly on a resultingreduction in chronic child malnutrition andan expansion in the employment rate. Ross also hailed the government forgenerating greater local added value, thusincreasing the country’s participation ininternational trade by promoting thediversification of the economy.

The government has also prepared a newNational Industrial Development Plan(PNDI), which aims to stimulate theemerging industrial sector, particularly in the country’s highlands and jungle regions, as well as remove barriers to investment. The PNDI is particularly relevant in thecontext of the country’s poor infrastructure,which discourages investment and hindersthe spread of growth to non-coastal areas.The importance of the plan has beenunderscored by a sharp reduction in mineralprices on the international market during2013. A drop in demand in the context of astruggling world economy and a slowdown inChina, one of Peru’s top trading partners,have pushed the prices of many of Peru’smain exports down, sucking the wind fromthe sails of the economy.

Luis Salazar, head of the Sociedad Nacionalde Industrias (National Society of Industries),hopes that the PNDI’s implementation willhave a major, positive impact on bridging thecountry’s infrastructure gap, thus narrowingthe distance between national markets andlocal industries. “The development ofindustry, in particular in the highland andjungle areas, will lead to new communicationsroutes, not only in relation to highways andterminals, but also to telecommunications,”Salazar noted.

For Peru’s Minister of Production, GladysTriveño, the development priority is clear.She said, “We firmly believe that the next stepin Peru’s development must beindustrialization. This will generate morecompetitive businesses and quality jobs.”

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What progress have you made with your 2011election campaign promise to ensure thatPeru’s economic expansion benefits thewhole country, and how has this progressbeen achieved?Peru maintains a high level of growth despitethe adverse situation in international markets– the low growth rates of important commer-cial partners and the reduction in commodityprices. In addition to maintaining macroeco-nomic and fiscal stability, our government hassought, in all its operations, to improve thequality of public expenditure by implement-ing budget programmes that evaluate results,objectives and aims.

In this framework, we are working withgreat effort on what we have defined as a“National Strategy on Development andSocial Inclusion – Incluir para Crecer” whichhas made important achievements, such asreducing poverty to 25.8% in 2012 (27.8% in2011). The strategy emphasizes: ● A reduction of rural poverty, by acting onchild malnutrition, increasing support forrural education and improving incentives forhealth care and infant education; ● A reduction in the existing gaps in theprovision of basic services (drinking water,sanitation, road infrastructure, rural electrifi-cation and the optical fibre network);● The development of the productivity andemployability of the population;● Protection of and enhanced welfare for theelderly.

Our social programmes are moving awayfrom welfare and are focusing on increasingpeople’s opportunities and reducing inequal-ity, so that a larger portion of the populationcan benefit from the country’s growth.

Can you explain the ways that Peru is ap-proaching the challenge of diversifying itseconomy?Peru is one of the most dynamic economiesin the region. However, in order to achieveinclusive and sustainable economic growth,our government is implementing a series ofmeasures to promote diversification intovalue addition. This strategy aims to promotePeru’s capacity to participate in global valuechains by attracting and facilitating invest-ment and improving competitiveness. Ourstrategy places emphasis on developing ourhuman capital, infrastructure and localsupply networks, to have local productioncomply with international standards. But italso promotes entrepreneurship, innovationand technology transfer.

For the past twenty-five years, the drivingforce behind our economy has been mining.While this has been very positive, we are awarethat the way production is structured in thecountry today is not very different to how it was25 years ago. Mineral exports have doubledbetween 1995 and 2012, from approximately30% to 60%, and while we have to continuecapitalizing on this, we should also createsynergies with other productive activities.

Diversifying our production requires along and complex reform process that muststart with bolstering our human capital. Ourprogrammes are working to achieve this:expanding the coverage of the Juntos (condi-tional cash transfer) programme guaranteesthat no more children are born into extremepoverty, while the Cuna Más programmehelps children under the age of three who livein poor, rural areas. Qali Warma is a schoolfeeding initiative, and the Beca 18 scholarship

programme prepares young people for anincreasingly demanding labour market. Thecurrent education reform aims at raising thestandard of education. All this prepareshuman capital for industrialization.

We are also finalizing the design of theNational Industrial Development Plan(PNDI), which will seek to focus the diversifi-cation of production towards those activitieswhere we have a comparative advantage. Tothat end, we have constructed a series of toolsto make investing in the country more attrac-tive. Some of these will be destined for foreigninvestment, so that they will create employ-ment and stimulate the economy but alsotransfer knowledge. This knowledge willbring about sustained economic growth inthe medium term and ensure that a broaderpart of the population reaps the rewards. Can you explain how the PNDI will foster theindustrial development of the country’s high-land and jungle regions?To diversify the economy it is necessary topromote the manufacturing companies thatgenerate the most value added but also todecentralize industry. At present, 56% of ourmanufacturing companies are in Lima. Thisconcentration is due to the capital’s relativelygood connectivity locally and internationally,which is hardly the case with other places inthe country.

In the regions, such as the highlands andthe forests, there is great potential to developvalue added activities, and this potential hasbeen identified as part of the PNDI. To makethe best out of this, we seek to bring in newprivate investment or pull existing investorscurrently focused on the extraction of naturalresources, and create new productive chainsthat integrate small and medium-size enter-prises into the value chain. The success of thisstrategy implies solving the specific needs ofindustry in the short term. What are these?Amongst others, suitable workplaces, humancapital, access to technology and qualifiedproviders. The tools provided within the PNDIwill help and will favour industrial develop-ment in the highland and jungle regions. How is your administration encouraging en-trepreneurship, in particular in relation toformalizing the large numbers engaged in theinformal sector?Peruvians are entrepreneurs by nature – some-times out of choice, sometimes out of neces-sity – but most businesses are highly informaland have a low level of productivity. We arelooking into simplifying procedures andmaking it easier to register a business. Further-more, with the sanctioning of Law 30056,

Interview with His Excellency President Ollanta Humala

Increasing opportunities,reducing inequality

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the national tax office (SUNAT) and theMinistry of Labour will help small andmedium-sized enterprises to correct formalcontraventions of the rules, giving them theopportunity to familiarize themselves with thelabour and tax legislation without having toface burdensome penalties.

On the other hand, we need to increaseproductivity. For this we are giving tax breaksto businesses that train their workers (up to 1%of their annual returns), with the aim ofsolving businesses’ concrete needs. We are alsofostering support services and technologytransfer, quality promotion programmes,supply development (with bigger producerchains that demand their goods or services),and so on. What policies are being implemented to helpPeru make a transition to a green economy?The institutional strengthening of theMinistries of Environment and Production ispart of a strategy to achieve a green economy.

Our government is working on establishing amodern legal framework that promotes coher-ent environmental management. The govern-ment has been conducting a series of actionsto create an extensive green economy. First ofall, it is pushing forward change within theenergy system, including increased use ofnatural gas and the promotion of investmentin renewable energy. Secondly, the govern-ment is emphasizing the improved treatmentof solid waste. Thirdly, the government has

been involving all economic sectors in a greengrowth strategy by implementing nationalmitigation actions with the Ministries ofHousing (green construction codes andsustainable housing); Production (energy effi-ciency in the production of building materi-als); Transport (improving public transport);and Energy and Agriculture (generating bio-energy). Furthermore, it has been boosting thedevelopment of the forestry sector.

There are also industrial restructuring initia-tives. For example, through the MultilateralFund for the Implementation of the MontrealProtocol, 22 initiatives of industrial conversion,totalling US$5.7m, have been implemented. Wealso provide technical assistance and invest-ment in emissions reduction projects. Similarly,we have 17 Technology Innovation Centres innine regions of the country, whose functionsinclude providing support to companies in theimplementation of cleaner production projects.● Translated from Spanish by Amalia Berardone.

“To diversify the economyit is necessary to promotethe manufacturingcompanies that generatethe most value added butalso to decentralizeindustry.”

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“Toilets consume a lot of water, so I had the idea of pro-ducing a small, daily-use product that preserves scarcewater and can be part of a water-saving revolution.” Sincesetting out with this idea back in 2007, CHEN Chunhonghas faced numerous obstacles, including a lack of businessexperience, meagre start-up capital and an abundance ofindifference and scepticism.

Today, she is the managing director of the Shanghai-based, Yiyuan Environmental Group, a company that pro-duces and markets toilets whose patented technology cansave up to 83% of water compared with conventional 6-litremodels. The company has quickly grown to employ morethan 30 people, with plans to set up a number of subsidiarycompanies. In cooperation with four manufacturing fac-tories, it now has annual sales of 150,000 units, a ten-foldincrease over the last four years.

Chen and her company’s products are gaining increas-ing recognition both in China and abroad. During theExpo 2010 China Shanghai, the Yiyuan EnvironmentalGroup’s water-saving toilets were installed in the UnitedNations pavilion, and in 2011, Chen was invited by UN Sec-retary-General Ban Ki-moon to participate in the fourthUN Conference on the Least Developed Countries. In 2012,she was listed on Fortune China’s ‘40 Under 40’ roll call of thecountry’s rising business stars, and she has been honouredas a National Outstanding Entrepreneur by the State Coun-cil of the People’s Republic of China.

Award winnerChen also won the Cartier Women’s Initiative Award for theAsia-Pacific region in 2011, becoming the first Chinesewoman to win the award since its launch in 2006. Aroundone thousand women compete for the annual awardswhich offer a prize of US$20,000 and a year of personalizedbusiness coaching to one winner from each of six conti-nental regions. The Initiative Awards coordinator, Cécile

Ney, recalls the reason for Chen’s success, “Alongside a solidbusiness plan, it was the social impact and conviction ofher initiative that appealed to our juries.”

Despite her success in recent years, Chen remains mod-est. Speaking to Making It, she reveals that the idea of build-ing a business was not her original intention. “I just wantedto promote the concept and products in support of myfather. But it was a hard lesson to learn. What supported methroughout the hardest time was my hope that both theconcept and the technology of water-saving can be pro-moted worldwide through products like ours, so that ourEarth will become a better place.”

InnovationsYiyuan Environmental Group’s most innovative product isits YYtoilet, which uses breakthrough technology, devisedby Chen’s father and patented by the company. As Chenexplains, there are three major changes to the structure ofthe traditional toilet.

“The siphon pipe and water tank used in the conven-tional toilet are abandoned. The removal of the pipe bringsa smooth and fast flush, thus solving possible problems likeblockage, and the no-tank design spares the headaches ofwater leakage caused by tank failure or damaged tank parts.”

Secondly, traditional flushing toilets use a siphon todrain the waste and the water that remains in the bottom ofthe bowl acts as a seal with the drainage pipe. In contrast, theYYtoilet uses gravity to pull sewage down, which means thata small amount of water, just one litre of water, suffices towash the toilet clean, and there is a valve to separate the dirtywater from the clean and to prevent the problems of sewageback-flow and the intrusion of bacteria, insects and rats.

The third innovation is the use of a foot-pedal insteadto the traditional flush handle. Chen explains, “The foot-pedal means you don’t even touch the toilet with yourhands, so no cross-contamination issues arise.”

In the latest of a series focusing on remarkablecompanies that are making waves in the areas of green industry and sustainable industrial development,Making It interviews CHEN Chunhong, managingdirector of a Chinese company which manufactureswater-efficient toilets.

YiyuanEnvironmental Group

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In addition to these features, the YYtoilet systemrequires no new fittings or adjustments to install and isextremely hard-wearing. Tests to measure its robustnesshave seen it takes up to 300,000 flushes before any sign ofa fault. “Going by average use for one family, that makes alifespan of 100 years – three times longer than traditionalflush-toilets,” adds Chen.

Breakthrough technologyAsked whether she is afraid that her patented technologywill be counterfeited, Chen responds, “To patent is not toprevent others from stealing our idea. The patent onlystates that we are the initiator. Furthermore, in another way,being copied says our technology is good. Especially froma macro-perspective, if more companies would employ thiswater-saving technology, it would actually bring more ben-efits to the global environment as a whole. In this sense,copying our idea is a good thing.”

Chen continues, “In China, toilet flushes account forhalf of a family’s total water consumption. Shanghai has apopulation of 23 million people. Imagine if all of themused our water-saving toilets. Clean water wastage could bereduced by nearly 270 million tonnes in the whole city.”

Chen’s success is testament to her perseverance anddetermination. Hailing from a farming family in a villagenear the city of Longyan in south-west China’s Fujianprovince, Chen was obliged to leave school early and sup-port her father by taking work in a succession of tough fac-tory jobs. She later taught herself English and finance andqualified as a professional teacher.

In 2007, she quit her job, sold her apartment and set offfor Shanghai to try and promote the water-saving toilettechnology. Only her husband supported her bold move.Her father, who designed the technology in the first placeand whose dream she wanted to help fulfill, was angryabout her decision to stop teaching.

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Against the oddsIn Shanghai, she struggled at first, lacking capital, connec-tions and support – all of them indispensable for starting abusiness in a new, competitive environment. With nomoney for advertising, Chen took on the work of promo-tion by herself: she talked to people on buses, and she dis-played her products on the roadside, anywhere that shecould attract people’s attention. With no money to employworkers, she delivered toilets and installed them for cus-tomers by herself.

In 2009, she got a break when she discovered an indus-trial park for energy-saving and environmental protectionbusinesses in the city’s Hongkou district and relocated herbusiness there. Chen recalls, “When I first set up my officein the industrial park, the building was still under con-struction. But the worst thing was my limited capital meantI couldn’t afford the rent. I had to convince the industrialpark managers to let me install my toilets in their buildingswithout cost and, in return, I didn’t have to pay rent for halfa year.” This deal paved the road for the business’s stabilityand eventual growth.

Chen named the company, Yiyuan, which is the combi-nation of two Chinese characters: ‘yi’ meaning fairness and‘yuan’ meaning water source. By giving the company thisname, she wanted to make it clear that it would be a cham-pion of fair and responsible use of water.

Green industryAccording to MA Jian, the National Programme Officer forthe United Nations Industrial Development Organization(UNIDO) in China, Chen is something of a green industrypioneer in China. “Currently, the development of greenindustry in China is still in its early stages. But the country’slarge population and its consumption of resources createa great demand for green industry. Thus, the Chinese gov-ernment is giving ample recognition to the need for andthe importance of developing green industry, and is pro-viding special support to green companies.”

Chen is one of the beneficiaries. The local authoritieshave installed Yiyuan Environmental Group products indifferent government projects, including schools, hospi-tals, hotels and low-cost housing. The company is also aregistered central government procurement provider.

Chen is well-aware of her role as a green entrepreneur.“China is a developing country with a large population anda large consumption of resources. Promoting green con-cepts is of vital significance in today's Chinese society. Itwill be Yiyuan’s permanent responsibility to save water andreduce sewage discharge in order to maintain a harmo-nious co-existence between Man and the Earth.”

Chen’s trail-blazing experience has been recognized byUNIDO, which has recently invited her to join its GreenIndustry Platform as a member of its Technical ExpertCommittee. As Heinz Leuenberger, Director of UNIDO’sEnvironmental Management Branch, explains, “We are verypleased to have Chen on board because her commitment toresearch, resource efficiency and innovative technologymakes her a natural catalyst for green industry. As Chinaplays a large and increasing role in global manufacturing,

energy demand and consumer spending, it is important tohave more businesses moving toward the principles of greenindustry, and resource-efficient and cleaner production.”

Women’s entrepreneurshipRecalling her early days in Shanghai, Chen admits that, com-pared with her male counterparts, it was more difficult forher to start a business, but thinks that the current two to oneratio of men to women entrepreneurs will change. “Withwomen’s role in the economic sphere increasing, the femaleforce in entrepreneurship can’t be ignored anymore. I believe our society should work together to create a betterenvironment for women’s entrepreneurship.”

As to how this can be achieved, Chen has some clear ideas.“First of all, women’s burden inside the family should bereduced. Men should be encouraged to share in-houseresponsibilities, such as caring for the elderly, children andhousework, thus giving women more time and space to usetheir talents.”

She continues, “Secondly, more women’s entrepreneur-ship funds should be established, so as to provide directfinancial support. Thirdly, policies in favour of female entre-preneurship should be implemented. We should set uptraining institutes and hubs for female entrepreneurs toshare their knowledge and experiences. Lastly, governmentsand organizations, like the United Nations, should worktogether with the media to create a generally more encour-aging atmosphere for female entrepreneurship.”● Interview by ZHONG Xingfei.

Above: diagramshowing somefeatures of theinnovative YYtoilet.Left: CHENChunhong withsome of her staff inthe company’sShanghai offices.Below: CHENChunhong at the2011 Cartier Women’sInitiative Awardsceremony, Deauville,France.

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By KAREN ELLIS, Business and DevelopmentProgramme Leader at the OverseasDevelopment Institute

Overseas Development Institute (ODI)analysis suggests that over the next tenyears, global trade patterns will betransformed by natural resource scarcity,climate change and internationalmitigation policies, resulting in aninevitable shift to a low-carbon globaleconomy. This is already beginning tohappen: we are seeing higher oil prices andincreased competition for land and water;carbon taxes, carbon footprinting and newgreen certification schemes beingdeveloped by both government andbusiness; and climate change is alreadyaffecting agricultural production andhydropower potential.

ODI analyzed how these drivers mightaffect economic prospects in low-incomecountries (LICs), and asked how – in thischanging context – they might achieve ‘low-carbon competitiveness’, i.e. how they canremain or become competitive in a future,low-carbon global economy. ODI hasreviewed the opportunities and risks facedby three low-income countries inparticular: Kenya, Cambodia and Nepal.Based on this, we identified ten keymeasures that can help to promote low-carbon competitiveness.1. Develop a green-energy sector. LICs cancapitalize on their relatively early stage ofenergy development to create a green-energy sector, giving them a competitiveadvantage in a future low-carbon globaleconomy. Competitiveness benefits will be

even greater as fossil-fuel prices aregenerally expected to rise, while renewableenergy costs are expected to fall astechnologies mature. This would avoid theneed for any future costly mitigationmeasures and could be supported throughnew sources of climate finance.2. Use fossil-fuel reserves wisely. Countrieswith fossil-fuel reserves, such as Kenya andCambodia, must take strategic decisions touse them in ways that support thedevelopment of renewable energy e.g. byexporting them and investing the revenuesin renewables. It is also important to specifya clear direction for energy policy, tominimize the uncertainty whichundermines incentives for privateinvestment in renewables.

3. Take advantage of firms’ innovation togenerate their own green electricity. Thereare impressive examples from Kenya ofmanufacturing and agribusiness firmsinvesting in their own mini-hydro powerplants, geothermal plants, cogenerationfrom sugar production, solar panels andwaste-to-energy installations. Some firmsare also establishing their own treeplantations, to create a sustainable supply of fuelwood and avoid depleting forests. An appropriate policy framework,including feed-in tariffs, the establishmentof mini-grid frameworks, and net meteringmechanisms for example, can encouragefurther investment in these alternativeenergy solutions, to improvecompetitiveness and increase the energysupply.4. Promote energy-efficiency measures.Some firms are already investing in energyefficiency, generating impressive costsavings and reduced carbon emissions. For example, a garment company inCambodia which invested £100,000 inenergy-efficiency measures enjoyed costsavings of nearly £400,000 per year, andreduced greenhouse gas emissions by athird. Introducing mandatory energy audits,as in Kenya, will encourage this strategy,which could contribute to significantcompetitive advantage over time. 5. Remove fossil-fuel subsidies. Subsidizingfossil fuels encourages inefficient energyuse, undermines competitiveness andincentives for development of renewables,and imposes a heavy financial burden. For example, the Nepal Oil Corporation has accumulated subsidy-related losses ofaround US$315m, which is underminingits ability to ensure supplies and invest indistribution infrastructure to meet growingdemand, which is in turn underminingwider industrial development. 6. Take advantage of the growing market forbiofuels as global demand is expected tomore than double over the period 2010-2020,

How to stay ahead in a low-carbon global economy

“There is much to be gainedif policymakers andbusinesses start thinking nowabout how to manage therisks and capitalize on theopportunities.”

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and biofuels have higher income potentialthan traditional crops. There could be meritin promoting dual crops, which can be usedfor both food and biofuel, such as sugar,cassava, sweet sorghum, or castor. This could raise incomes and enable farmers todiversify their livelihoods, helping topromote both food and energy security, if a domestic market for biofuels can also be established.7. Implement environmental regulation,standards or certification in themanufacturing sector to keep pace asenvironmental standards or certificationincreasingly become requirements toaccess international markets. For example,the Cambodia Chamber of Commercerecognizes that Cambodia needs to takeaccount of environmental concerns in itsmanufacturing sector through anenvironmental accreditation programmeif it is to continue exporting successfully in future.8. Support farmers in the transition tosustainable agricultural practices and carbonfootprinting to meet future certificationrequirements, enhance yields, ensure long-term sustainability of production, andcapitalize on projected rising global foodprices. There are big differences in uptake of

10. Establish green credentials for thecountry’s tourism sector. Increasinginternational emphasis on environmentalresponsibility will reward those tourismdestinations that are perceived as relativelygreen, and early converts to sustainabletourism will make market gains. Therefore,establishing a brand as a green tourismdestination will be important to creating acompetitive advantage for the future. It willalso help ensure the sustainability of theindustry. Tourism has been growing at arate of 20-30% per year for over a decade inCambodia, but faces big challenges now dueto environmental pressures which couldjeopardise its future growth. For example,there are concerns that the water shortagein areas surrounding Angkor Wat,exacerbated by illegal water pumpsconstructed by hotels, could createinstability causing the ancient monumentsto crack or crumble.

Low-income countries face bigopportunities and risks as global tradingpatterns change. But there is much to begained if policymakers and businesses startthinking now about how to manage therisks and capitalize on the opportunities,positioning themselves for success in a low-carbon global economy.

these practices across countries. A reportfrom the Food and AgricultureOrganization (FAO) states that 400,000small farmers are involved in conservationagriculture in Ghana, while only 5,000 arein Kenya, with potentially significantimplications for the competitiveness of theKenyan agriculture sector.9. Develop economic sectors thatcapitalize on forest resources andencourage sustainable forest management,such as wildlife tourism, or non-timberforest products such as medicinal andaromatic plants (MAPS). This willencourage conservation of forest assets,which should also increase in value overtime as carbon market mechanismsdevelop. Given its abundance of endemicspecies, Nepal has a strong potentialcompetitive advantage in the market forMAPS, which is estimated to be growingby 8-10% a year globally – although Nepal’sproduction and export capability need tobe developed to take advantage of this.Ecotourism is growing even faster, ataround 20% per year, and some countriesare much better than others at capitalisingon their wildlife and nature. Both sectorsneed regulation to ensure they aremanaged sustainably.

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period of considerably slower exportgrowth, policymakers need to give greaterweight to domestic demand.

Moving towards a more balanced growthpath could, on a sustained basis,compensate for the adverse effects ofslower-growing exports to developedcountries. Moreover, it could be pursuedsimultaneously by all developing andtransition economies, without the “beggar-thy-neighbour” effects and thecontractionary wage and tax competitioninherent in export-led strategies. Indeed, if many developing and transitioneconomies simultaneously give domesticdemand a greater role in their growthstrategies, their economies could becomemarkets for each other, fostering regionaland South-South trade, and thus furthergrowth for all. Hence, shifting the focus ofdevelopment strategies to domesticmarkets does not mean minimizing theimportance of the role of exports. Exportscould actually expand further if severaltrade partners were to achieve highereconomic growth at the same time. In thatcontext, natural-resource-rich countriesmay be able to continue to benefit fromhistorically high commodity prices. Butthey should ensure that the resultingrevenues are used for investing in newactivities that enable production andexport diversification.

The study warns that there arechallenges to such shifts in growthstrategies. Developing countries’insufficient market size is often cited as areason why domestic-demand-orientedgrowth is not viable. But recent projections

on the growth and composition of the“global middle class” suggest that some ofthe most populous developing andtransition economies may now have therising household consumption needed tocompensate for a major part of any declinein export demand from developedcountries. The study underlines, however,that to realize this sales potential,policymakers must boost domesticpurchasing power and achieve anappropriate balance between increases inhousehold consumption, privateinvestment, and public expenditure. The specifics of this balance depend onthe circumstances of individual countries.But, in general, striking the balance willrequire a new perspective on the role ofwages and the public sector.

The TDR13 recalls that export-orientedstrategies emphasize the cost aspect ofwages. Indeed, wages have lagged behindproductivity growth in most countries inrecent decades. By contrast, a strategygiving a greater role to domestic demandwould emphasize the income aspect ofwages, as it would be based on householdspending as the largest component ofdomestic demand. Employment creationcombined with productivity-orientedwage growth should create sufficientdomestic demand to fully take advantageof growing productive capacities, withouthaving to rely on continued export growth.Some developing countries have recentlytried to boost consumer spending byeasing access to consumer credit, but suchan approach can lead to excessive debt andhousehold insolvency, as amplydemonstrated by recent experiences in anumber of developed countries.

The report contends that the publicsector can further boost domestic demandby increasing public employment andundertaking investment. Moreover,changes in the tax structure and thecomposition of public expenditure can

Export-led development is no longer viableBy the United Nations Conference on Trade andDevelopment (UNCTAD)

The UNCTAD Trade and DevelopmentReport 2013 (TDR13), subtitled “Adjustingto the changing dynamics of the worldeconomy,” cautions that a prolongedperiod of slow growth in developedcountries will mean continued sluggishgrowth in their imports. Developing andtransition economies can compensate forresulting growth shortfalls throughcountercyclical macroeconomic policiesfor some time, the study says. But, in thelonger term, policymakers will need toreconsider development strategies thathave been overly dependent on exports.Instead, the report says, developmentstrategies should place a greater emphasison the role of wages and the public sectorin the development process.

Prior to the ‘Great Recession’, buoyantconsumer demand in some developedcountries enabled the rapid growth ofmanufactured exports fromindustrializing developing countrieswhich, in turn, provided opportunities forprimary commodity exports from otherdeveloping countries. The overallexpansionary – though eventuallyunsustainable – nature of thesedevelopments boosted global growth. The boom also seemed to vindicatedeveloping and transition economies inadopting an export-oriented growthmodel. However, such a model is nolonger viable in the current context of slowgrowth in developed economies. Toaddress the prospect of a prolonged


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shape the distribution of purchasing powertowards those income groups that spendlarger shares of their incomes onconsumption. Increased aggregate demandfrom household consumption and thepublic sector would provide an incentive toentrepreneurs to invest in increasing realproductive capacity.

Investment decisions could be furthersupported by industrial policy. This wouldaim at making the sectoral allocation ofinvestment better match the newlyemerging patterns of domestic andregional demand. Local enterprises indeveloping countries may already have anadvantage over foreign ones in catering tothe new demand patterns emerging intheir countries and regions. They havebetter knowledge of local markets and localpreferences and can more easily developappropriate new products and distributionnetworks. Thus, they could prevent the risein domestic demand from causingexcessive trade deficits.

In the case of countries heavilydependent on commodities exports, theTDR13 advises a careful evaluation offuture developments in export earnings todetermine if commodity prices are in a so-called “super-cycle”, and, if so, at whatpoint in the cycle they are currentlylocated. It argues that a collapse ofcommodity prices or a quick return to along-running deteriorating trend isunlikely to occur in the next few years. As long as commodity prices remain atrelatively elevated levels and commodityproducers are able to appropriate a fairshare of resource rents, policymakersshould ensure that the revenues accruingfrom natural resource exploitation areused to reduce income inequality and tospur industrial production. Relatedmeasures should include publicinvestment and the provision of socialservices targeting those segments of thepopulation that do not directly benefitfrom resource revenues.

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DR. NANNETTE LINDENBERG, GermanDevelopment Institute/Deutsches Institut fürEntwicklungspolitik (DIE)

Environmental disasters around the globekeep reminding us that humankind has tochange its unsustainable ways of living.Therefore we need enormous amounts ofgreen finance to tackle these challenges inthe coming decades. The good news is thatwe have a broad consensus on thisnecessity. However, almost acknowledgedas much as the notion that we have torestrict our ways of living in a way that westay within the planetary boundaries, is thesense of helplessness about where thisgreen finance shall come from.

At this point, we are facing the firsthurdle: we do not have a precise definitionof ‘green finance’, which makes it hard tomobilize it. For the moment, we will define‘green finance’ broadly as finance flows orinvestments that respect the planetaryboundaries.

A multitude of reports on the bottlenecksand challenges of green finance have beenpublished. The same is true for estimationsof financing resources and needs, as well ascase studies on best practices. In a nutshell,financing needs are impressively high,with estimates for investments in greeninfrastructure varying between US$1-2trnper year for the next decades. Governmentbudgets are insufficient, even more so inthe aftermath of the latest crisis, andprivate and institutional investors (such aspension funds, assurances and sovereignwealth funds) that have assets undermanagement of several tens of trillions ofdollars only invest less than 1% of theirportfolios in capital products that aretargeted for green investments. The well-

known constraints include high risks,insufficient policy support and enablingenvironments, and a lack of a projectpipeline.

Why can’t we succeed in moving forward,in scaling-up and mainstreaming greeninvestments? The answer is definitely acomplex one, but a good starting pointmight be to change the way, the processesand the places that we are using to discussgreen finance and the necessary economic,political, legal and regulatory frameworkconditions.

We need a trio of exchange, transparencyand cooperation. Why will this make thedifference? The answer is straightforward:there are too many actors, too muchfragmentation. The problem is not just that

we have two distinct communities,development cooperation and climatefinance, with different perspectives ongreen finance, as well as many differentprocesses on the international level, withinthe different international organizationsand country groupings. The problem isalso that within national governmentsthere are many parallel working streamsthat all focus on green finance in one wayor another. It seems logical that theministry for development cooperationdeals with the financing of sustainablegreen investments, the environmentministry with climate finance, the financeministry with long-term infrastructureinvestments – which have to be green toavoid lock-in effects, and the energy

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ministry (if such a ministry exists) withfinancing for sustainable energy, and soon and so forth. But it does not stop here;often there are several directorateswithin one ministry that feel responsiblefor the processes in differentinternational bodies, like the UN system,the World Bank and the G20. If thisseems confusing, inefficient or evencounter-productive, well, it is.

The first thing to do is to establish waysof exchanging and sharing among actorsengaged in green finance-relatedactivities – within ministries andgovernments, but also within theinternational bodies, such as the G20Development Working Group’s DialoguePlatform for Inclusive GreenInvestments, the G20 Study Group onLong-Term Investment Financing, theG8 Impact Investment Taskforce, and theUNFCCC Work Programme on Long-term Finance, to name just a few.Although, the main focus and purpose of their activities might differ, after alltheir goals are ultimately all related tofinancing a sustainable future forhumankind.

The second thing to do is to puttransparency at the core. One aspectconcerns the different processes: itshould be feasible for all interestedstakeholders to get a rough overview ofrelevant processes with a bit of research.The other relevant aspect is the necessityto publish the data relating to theexperience of existing financing of greenprojects. Here, development financeinstitutions and the private andinstitutional finance sector will have tomake an effort and break ingrainedhabits. They certainly have good reasonsto be reluctant to publish informationabout green finance, but we urgently needthis data in order to rigorously assessexisting experiences, to learn about bestpractices, to find out more about broadly

applicable business models and todeduce recommendations for others. Ifwe are to shift the focus from pioneeringto mainstreaming green finance, casestudies are no longer sufficient.

The third thing that needs to be doneis to increase cooperation and stopfragmentation into differentcommunities (the developmentadvocates versus the climate changecombatants versus the long-termfinancing promoters). It is not alwaysnecessary to create a new task force oran additional working group, justbecause the framing or wording of theexisting initiatives is, for whateverreason, not the favoured one. Less canbe more. It is not necessary to separatesustainable green finance from climatefinance, from long-term finance, fromdeveloping finance. The goal must be toconsolidate the different processes, tomake them more effective and efficient.Cooperation should, however, not onlyinclude governments, but researchinstitutions, the financial sector andprivate companies too.

The goal must be to come up withconsistent, concise and aptrecommendations – and moreimportantly – policy actions that speed-up the rise of green finance. We have toachieve this on time – climate change isnot waiting until we finally find a goodsolution – and making use of thecollective intelligence might make adifference.

Our New Year’s resolution for 2014should be to pave the way for greenfinance. In theory, it is simple. The trioof more exchange, more transparencyand more cooperation can contributesignificantly to our common goal: tomobilize the necessary resources tofinance a decent life for every single oneof more than seven billion people andtheir descendants.

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Berners-Lee, Mike – The Burning Question: We can’tburn half the world’s oil, coal and gas. So how do we quit?

Brautigam, Deborah – The Dragon’s Gift: China in AfricaDietz, Rob and O’Neil, Dan – Enough Is Enough:

Building a Sustainable Economy in a World of Finite Resources

Hallegatte, Stephane; Fay, Marianne; Vogt-Schilb, Adrien– Green industrial policies: when and how

Helm, Dieter – The Carbon Crunch: How We’re GettingClimate Change Wrong – and How to Fix it

The International Institute for Environment andDevelopment (IIED) and the Green Economy Coalition– Scoping a green economy: A brief guide to dialoguesand diagnostics for developing countries

Jackson, Tim and Victor, Peter A. – Green Economy atCommunity Scale

McKinsey Global Institute – Manufacturing the future:The next era of global growth and innovation

Monga, Célestin; Stiglitz, Joseph; and Lin, Justin Yifu – The Rejuvenation of Industrial Policy

Schwarzer, Johannes – Industrial Policy for a Green Economy

UNIDO – Emerging trends in global manufacturingindustries

UNIDO – 21st century manufacturingWade, Robert – Return of industrial policy?

www.cepal.org –The Economic Commission for LatinAmerica and the Caribbean assists and promoteseconomic and social development

www.chinadialogue.net – A bilingual website, with news,features and reports on environmental issues in Chinaand the rest of the world

www.climate-kic.org – Europe’s largest public-privateinnovation partnership focused on climate change

www.global-inst.com – The Global Institute ForTomorrow is an independent think-tank providingexecutive education from an Asian worldview

www.greengrowthknowledge.org – The Green GrowthKnowledge Platform enhances and expands efforts toidentify and address major knowledge gaps in greengrowth theory and practice

www.greenindustryplatform.org – The Green IndustryPlatform is a global, high-level, multi-stakeholderpartnership and forum to catalyze, mobilize and mainstream action on green industry around the world

www.ineteconomics.org – The Institute for NewEconomic Thinking was created to broaden andaccelerate the development of new economic thinkingthat can lead to solutions for the great challenges ofthe 21st century

www.isid.org.in –The Institute for Studies in IndustrialDevelopment (ISID) is an Indian policy researchorganization

www.teriin.org – The Energy and Resources Instituteworks towards global sustainable development,creating innovative solutions for a better tomorrow

www.whygreeneconomy.org – A space to share ideasfrom across the world on a new economic model totackle climate change and protect the environment

www.wupperinst.org/en – The Wuppertal Instituteinterlinks aspects of climate, environment and resources


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