Development cooperation: more than band-aids

Speech by Agnes van Ardenne-van der Hoeven,

Minister for Development Cooperation.

Introduction

Ladies and gentlemen,

Some of you may be wondering why I have come here on Economics Day to talk to tomorrow’s economists. Some of you may think development cooperation is a kind of band-aid. Television programmes often suggest that aid is about helping people in poor countries when they’re hit by disasters. That is part of aid, but only a small part. Today I will try to convince you that development cooperation goes beyond that. And that our field needs economists like yourselves. I need people who know about trade, about investment and about finance.

Increasing the volume of aid is only part of a coherent development strategy. The Millennium Declaration adopted in New York in 2000 makes that very clear. It also states that countries must be given the chance to grow out of poverty. And that economic growth is key. But for growth to happen, the donor community must create a level playing field. All countries have to be on an equal footing in international trade and investment. I was listening when Live8 called on the donor community to come forward with more and better aid, to cancel debt and to create trade justice.

This year we have achieved a lot. Even Bono said that the politicians had done a good job! We agreed on more and better aid at the Millennium Summit in New York. We made good progress on debt relief during the World Bank meeting in Washington. To live up to Live8’s expectations, we have to deliver a true development round at the WTO talks in Hong Kong December this year. Today is the first of December. Hong Kong is only thirteen days away.

Major players like the US and the EU cannot be allowed to stall preparations because of internal disputes about the winners and losers of trade liberalisation. We owe it to the developing countries to make the next WTO round a real development round.

Road map

Today I want to show you that your knowledge of economics is important for development. I shall take my examples from your own areas of study: international trade issues, private sector development and the international financial sector.

International trade issues

Ladies and gentlemen,

To address global poverty, we must look beyond aid and debt relief. Trade is the missing ingredient in the Millennium Development Goals. Without stronger economic growth in the developing world, it will be impossible to lift poor countries and poor people out of poverty. Open trade regimes can be a powerful engine for sustained economic growth. This is free trade not for its own sake but as an efficient means of improving standards of living worldwide. It is unbelievable that countries which have benefited from free trade over the past fifty years are now denying the same benefit to less developed countries. They are kicking away the ladder behind them.

Trade example: cotton in Mali

Ladies and Gentlemen,

Let me give you an example. Mali, one of the poorest countries in Africa, depends on cotton for 79% of its export revenues. Throughout the eighties and nineties, the Netherlands supported cotton farming in Mali. It donated fertiliser to the state cotton company – CMDT – and provided budget support. In the nineties CMDT was privatised. In that same decade the farmers managed to double production. Unfortunately, at the same time, the export price of cotton on the world market was decreasing annually by 17%. The US and other large exporting countries give their cotton farmers income support. In 2004 this amounted to between 1 and 2 dollars per kilo. World Bank economists recently calculated that around 150 to 300 million dollars’ worth of export revenue was lost through these subsidies. So, while the cotton farmers of Mali increased efficiency and quality as much as they could, they still could not earn a decent living.

When I took over responsibility for development cooperation, I modernised its strategies and ways of doing business. Rather than directly supporting cotton production, I now support Mali and a number of other West African countries like Burkina Faso, Mali, Benin and Chad in the WTO negotiations on unjust cotton subsidies. And the WTO recently upheld Brazil’s challenge against US cotton subsidies.

This is my practical approach to coherence in global policies.

As future economists, what would you recommend?

Private sector development

Ladies and gentlemen,

The second area in which your knowledge is relevant is private-sector development – which is crucial to economic growth and sustainable development.

From the moment I became Minister for Development Cooperation I did all I could to involve the private sector and civil society in finding new ways of working together for development. In my view, the role of the private sector is key. The road to development leads through the marketplace, not through some government office.

I firmly believe in public-private partnerships and I know that private companies do too. Last year I called on them to submit proposals for public-private partnerships. We got far more than we could handle. I see this as a great success. I think such partnerships are becoming ever more important in a rapidly changing world. As Thomas Friedman recently wrote, the role of the nation-state in a globalising world is increasingly confined within national borders. At the same time the private sector and civil society are networking globally, and are not bound by national borders at all. I don’t just mean companies like Heineken and Unilever, but also organisations like Greenpeace and Jubilee 2000 – perhaps even your own student association. As Friedman puts it: “the world is flat”. He sees people as world citizens connected by the Internet and mobile phones. They can be partners or competitors even if they don’t live in the same country. An IT engineer in Bangalore can compete with his rival in Boston without physically moving there.

Dutch private sector and NGOs

Ladies and gentlemen,

When I look around this hall I’m glad to see the logos of companies and ministries I work with. I recognise ABN-AMRO, Fortis, AEGON and BOFEB. I am delighted that many of these companies have embraced the concept of ‘people, planet, profit’. In fact, they have embraced yet another ‘P’ – the ‘P’ of partnership. Partnership involves collaboration between the private sector, civil society and government, with each party making a special contribution. This could be finance, insurance, innovative solutions, new networks or political influence. The idea is that the whole is greater than the sum of its parts.

Many companies are interested in this kind of collaboration and are firmly commited to corporate social reponsibility. Multinationals like Heineken and Unilever have set up HIV/AIDS partnerships in Africa. They bring in their logistics expertise; for instance, they can figure out how to deliver condoms to the most remote areas. Large NGOs like NOVIB and ICCO are also seeking partnerships with for example Nuon, Rabobank and Oikocredit. Banks have introduced the innovation of reinsuring risks on international markets, but they are also providing microcredit.

I also see companies I do not yet work with. Perhaps this is a good opportunity to suggest an open dialogue about a possible partnership.

So if you decide to work for these companies instead of my Ministry, we may still be joining forces in a partnership for sustainable development!

Financial sector, NFX

Ladies and gentlemen,

I also recognise the logos of the Ministry of Finance, the Ministry of Economic Affairs and a number of Dutch banks. Which brings me to the third area in which your knowledge can make a difference. Partnership with the financial sector. Let me give you a recent example of public-private partnership. Not long ago we set up the NFX Netherlands Financial Sector Exchange Platform together with Fortis, ABN-AMRO, some other banks and the Ministries of Finance and Economic Affairs.

Businesses need access to financing, so that they can innovate and adopt new technologies. The UNCDF calculates that only 2% of the poor in developing countries have access to credit. One of the Platform’s first activities will be to introduce commercial banks in Tanzania to a new way of appraising loans for small and medium-sized businesses. Until now most Tanzanian banks have concentrated on lending to large enterprises because it is easy to assess the risks involved. They lacked the technology to assess the risks of lending to small and medium-sized enterprises. Small farmers had no access to credit at all. We are about to change that.

The Platform’s second activity is to introduce new technical standards for Macedonian banks, which will make financial reporting more transparent. European banks will not invest in Macedonian banks until the new international financial reporting standards are applied. This makes it hard for small local enterprises to get loans. It’s exciting to see the Platform getting to work on serious issues so quickly.

So, as future economists, what activities would you recommend?

Concluding remarks

Ladies and Gentlemen,

In closing, I hope I have managed to convince you that development really does happen in the marketplace.

Let’s start the discussion now. As future economists I call on you not to watch from the sidelines, but to take an active stance. Developing countries need trade, they need foreign investment and they need a better financial sector. We owe it to farmers in Mali or in Peru, who want fair trade and the opportunity to earn an honest living. Consider for a moment what you can do to make developing countries a better place.

You could work in a developing country during your placement - we have a programme for this called Xplore. You could join a lobby group or a network, and try to change the international agenda – as Live8 did during the Millennium Summit. You could get a job with a bank or insurance company, and focus on sustainable development. Or you could start your own company and forge partnerships with other companies in poor countries.

In the case of Mali’s cotton sector, it was privatisation that boosted production. Farmers have doubled their yields in the past decade. Now that a farmer can buy her own fertiliser, she has an incentive to use it well and work hard to improve the quality of her cotton. Now what we need is to make real progress at the talks in Hong Kong. That way she can get a better export price, make a decent living and start planning a future for herself and her children. If only for her sake, I will try my very best to make the negotiations in Hong Kong a success. And I am also counting on you.

Thank you.