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By: Luciano Borin, President, ActionStream International
Speech given at the La Sapienza University, Rome, Italy
April 2008

In a fast changing world, development challenges have increasingly become complex to address in a sustainable way. Globalization has put increasing pressure on emerging economies struggling to bridge the competitiveness and technology gap while internally coping with mounting poverty, youths un-employment, decaying social services, energy scarcity and governance problems.

Market fragmentations, often inherited from a colonial past, constrain the development of industrial sectors and hamper the build-up of economies of scale necessary to stand international competition. In several world areas, and particularly in Africa, market regionalization is progressing slowly, and policy/legal/regulatory frameworks, if in place, do not fully translate into symmetrical actions on the ground.

In many emerging economies, the expansion of small/medium enterprises (SMEs) has not yet progressed at a robust pace, obstructed by cultural and social barriers (particularly for women entrepreneurs), by bureaucratic and parasitic administrative systems, by shortage of physical and financial infrastructure, by lack of business services, linkages and strategic alliances. The general weakness of business associations has prevented the aggregation of SMEs into conglomerates able to credibly produce and export at international level. Particularly challenging is the whole dimension of business start-ups, which are disconnected from markets, cannot access technical and financial support, and are exposed, in the absence of specific business development services, to high failure rate.

Certain sectors, even if inherently promising such as for instance tourism and agribusiness, have difficulties to develop, in the absence of a strategic vision and organized actions, which would leverage on specific comparative advantages to enhance local competitiveness and on durable business linkages with international clientele.

The struggle for fast development has also brought an increasing divide between urban and rural populations, whose economic activities are not sufficiently interlinked. Factors of production such as electricity and telecommunications are generally not available in most rural communities, which are also largely deprived of drinking water and social services. In such conditions, equitable growth does not materialize, the poverty gap between rural and urban populations widens, and rural to urban migrations accentuate, with related strain on urban services and infrastructure.

In many developing countries, national economic growth does not yet translate into a parallel decline of rural poverty, while urban poor are also on the rise in fast-expanding peri-urban areas.

In parallel with inherent structural/sector issues in developing economies, the donors' community has also been experiencing difficulties in effectively delivering its assistance. Reasons are multiple, such as:
  • Excessive reliance on government structures, often inadequate to both implement and monitor development programs. A typical example being the continuing use of project-specific government Management Units, whose constitution has proven disruptive to the good functioning of public administrations, and even detrimental to achieving results fast and well.

  • Superficial approaches in advocating and enforcing decentralization strategies in public administrations deprived of technical capacity even at the central level, with consequent issues of duplication of efforts, diminishment of strategic focus, and additional budgetary requirements.

  • Excessive emphasis (often politically induced) on expanding provision of financial aid rather than tailoring optimal levels of external financial assistance on realistic local adsorptive capacities.

  • Intricacy of donors conditionalities, procurement procedures and reporting requirements not always coherent, realistic or easy to be assimilated by local administrations. Procurement delays are among the most common causes of project implementation issues; and

  • Progressive bureaucratization of approaches in development institutions, which, while aiming at expanded comprehensiveness, gradually lose impact on the ground in terms of concrete results and monitoring effectiveness. The progressive shift from project lending to program lending, and then towards mere budgetary support, reduces the donors' monitoring capacity. Supervision missions are by far less incisive than in the past. And the impact of many structural adjustment loans, while adding pressure to international debt exposure of emerging economies, has had mixed results. Conceived as the necessary 'carrot' to induce policy changes, these operations have been often hampered by lack of capacity and funds diversion practices in recipient countries.

Indeed, efforts of international development institutions, even when corroborated by sensible participatory approaches, are often confronted with mixed results.

From a first phase when public projects were supported for infrastructure and industrial sectors, a necessary step considering that the perceived high country risk of most beneficiaries discouraged international private investment, the mid 80s saw an evolution of strategy in leading development organizations towards encouraging private sector initiative as a necessary complement to public interventions. In the World Bank, this shift started taking place under the leadership of a french Vice president for Private Sector, and successively spread over other organizations. The difficulty however to harmonize internal procedures for public loans with the rapidity and flexibility required by private sector operations, brought increased emphasis on developing structures specialized for private sector investment, among which the International Finance Corporation of the World Bank Group has been and still is the leader. However, institutional and operational harmonization with the public sector orientation of most institutions, has not been easy to achieve.

Private sector development agencies were often criticized for lack of country and strategic focus, and for being opportunistic in the choice of their operations. On the other side, public sector staff was often considered inadequate to appreciate the need for fast response and for concrete actions by their colleagues operating on private sector initiatives.

This tension has progressively induced certain institutions, such as the World Bank, to merge private and public perspectives, operations and programs into integrated public-private sector departments (for instance energy, mining, etc.). If a more balanced and strategic approach was achieved, this was not without internal difficulties. Other public organizations (such as the Asian Development Bank and the African Development Bank), opted for establishing private sector departments within their structures, but this choice remained hampered by the difficulty to harmonize approaches and procedures between the public and the private wings of those institutions, and in providing resources and autonomy of action to their private sector wings. The resolution of these problems also remained constrained by the nature of Board composition of those organizations, which was and is generally composed by civil servants and predominantly reflects public sector perspectives.

The general improvements in the macro-economic framework of most African countries in the last decade are instead advocating massive efforts to attract to Africa international investment (for instance, in Africa private sector investment in infrastructure is less then 10% than that in South America), and to also stimulate local investment by Africans in Africa. Indeed, this continent is well known for its continuing brain drain, but less noticed for the exports of capital towards developed countries. In reality, the flow of capitals from Africa by Africans (calculated by some to be of the same magnitude than the international debt of those countries ) is an important issue that should deserve more attention and an open debate.

The world is changing. Undoubtedly technological innovation and progressive market integration have brought world populations to closer interactions. Have also they brought better life quality for all? Scarcely; actually in many societies the gap between rich and poor has been widening in the last two decades. Do we have more balanced societies? The number of conflicts and unrests since the start of the new millennium does not suggest so. Are we reaching a sustainable utilization of natural resources? Certainly not, with both industrialized and emerging economies still unable to appreciate the long term risks connected to an irresponsible exploitation of lands and seas.

In such complex context, are development organizations sufficiently capable to adapt to and meet future challenges? Partly. There are too many of them, often overlapping. It has been suggested that competition among development institutions is good, but would the legitimate judges of such competition (the recipient countries) be so determined in turning away the financial support of mediocre donors?

Multilateral organizations are generally better equipped to develop strategic approaches than bilateral ones, but the financial sustainability of such institutions also facilitates strategic, long term approaches. Institutions that live on narrow and often capricious donor contributions, are necessarily inclined to develop short term opportunistic attitudes. In recent years, following the pressure of some world leading nations, there has been a trend in development organizations towards combining loans with increasing portions of grants. While such trend may be realistic in the short term, in view of the heavy debt situation of many emerging economies, this approach does not build sense of responsibility nor leads to effective use of external resources, while it reduces the financial, and therefore intellectual, independence of those institutions relying on self-sustaining financing structures.

Financial independence also means capacity to hire and retain first-class professionals. Under-budgeted institutions are less able to retain good staff, and gradually become the haven of mediocre, politically sponsored and inward looking bureaucrats, unable and unwilling to promote new ideas and welcome intellectual challenges.

Emerging nations need to be supported by less numerous but very competent, financially self-sustainable development organizations, staffed with dynamic, result oriented 'development entrepreneurs', willing to put at risk their careers to improve people life. The performance evaluation of development institutions' staff should be done by their ultimate clients. Managers should be intellectual leaders. Donors supporting those institutions, should be represented by competent and combative professionals (some of them from the private sector) in those institutions' Boards. Mediocre Board members make mediocre institutions.

In the near future, changes should occur in the way of doing business by development institutions. Let's focus on a few points.

First, the contribution of development agencies to a changing human environment should adjust not only to capture those changes, but particularly to anticipate them. Jim Wolfenson, one of most visionary Presidents of the World Bank, had the perspective of his institution becoming, beyond the financial support, a conduit for knowledge.

Indeed, development institutions have done a lot of good, despite objective constraints and frequent failures. But they have never been remarkable (despite the high level of professional expertise in their ranks) in anticipating events. This has not only been the case of the financial sector (such as for instance the collapse of some Latin America currencies, the Asian financial crisis, and the very recent financial turmoil), but also in other areas, such as the surge of oil prices, the scarcity of raw materials in general and now even the food crisis.

Leading development institutions should put efforts to sharpen their capacity of predicting evolving human dimensions, and to provide broad, independent advice to their clients, fostering regional, global perspectives rather than narrowly local ones.

Second, a more efficient repartition of roles should be envisaged between international and regional institutions, with the former more focused on macro-structural issues, and the latter more specialized on project finance (this is already the case in terms of staff profiles). Similarly, a more efficient separation of roles should be achieved among international/regional institutions and sub-regional/local ones (the case for Africa is quite eloquent in this respect), including a clear rationale for local currency lending policies.

Third, let's be more serious about governance. While there is widespread consensus that developmental processes, in their cultural, political and socio-economic dimensions, require assimilation timeframes which cannot be compressed beyond reasonable levels, therefore justifying patient and long term assistance perspectives (albeit difficult to be sustained by most donors), it is also important that beneficiaries, when adequately involved and empowered, are held accountable for the outcome of development programs, and that good governance in managing aid resources, and in achieving the expected results for the end beneficiaries, is strictly enforced. In other words, support should go particularly to those beneficiaries who deserve it, and are able to show good results in the utilization of external resources.

Fourth, let's strengthen the development impact of operations. The development community must focus on sustainable results, for which there is no blueprint solution. While international knowledge and dissemination of international best practices are important to design workable approaches, the success of each program and initiative is very much linked to the specific context, where experience on the ground is of fundamental importance. Therefore, there is the need for specialized approaches. Development programs should privilege selectivity and experience on the ground, as well as concrete monitoring capacity. Good, visible results are the best incentive to spur initiative and replicate success among local populations.

To this end, let's trim the myriads of 'internet consultants' crowding development institutions, let's rely on professionals with proven expertise and, particularly, let's support the emergence of a local consulting industry, able to assist effectively the development of external and local initiatives.

In essence, on which priority challenges should the development institutions focus in the future? Difficult to make simplifications, but the main areas where they can make a difference are, in our view, the following:

Education

It is easy to concur that this is the key to development and to economic vitalization. But the wisdom of mirroring educational structures that may have a sense in other cultures has been really assessed? And why to focus almost exclusively on education-for-all, or primary education, when emerging countries also need professionals and managers that can only be nurtured through respectable tertiary education structures?. How many projects targeting the curricula and technology enhancement of university institutions and business schools have seen the light in the past 20 years? How many reputable universities in Africa can adequately retain and prepare students for responsibilities in their countries, while Donors indulge in extending scholarship programs in western universities to students who will never return?

Infrastructure

At the factory level, an industrial plant in Morocco can be more efficient than one in China, but the advantage quickly disappears when the impact of the infrastructure framework, physical and financial, is factored in. Infrastructure is a sector where public and private partnerships can develop quite effectively, however such 'marriage' is still seen with cautiousness , and sometimes viewed as suspicious. If in Africa PPP projects in infrastructure do not develop so fast, this is not so much due to often vague perceptions of high country risk. Indeed experience shows that important infrastructure initiatives can flourish also in less than totally stable countries. But one important issue is that Governments are not familiar with those PPP processes, and /or unwilling to carry them out in total transparency.

Economic Empowerment (the main pillar of sustainable social development)

Government revenues come from taxes, and if the economy does not grow, it will always be volatile to embark in social programs founded on unpredictable resources. Therefore, helping private sector to develop is a key way to enhance sustainability of social improvements. The support to private sector concerns many dimensions, rural and industrial, and helps particularly the poor. To this end, development organization should expand internally their capacity to assist in this field. Let's educate development institutions staff to better understand the massive potential of unleashing private sector in emerging economies as a key tool for social advancement.

And finally, attention should be paid by development organizations to foster the emergence of national or regional media structures/networks, fully independent and protected by international conventions. Independent and reliable sources of information are today accessible in the western world, but much less available to monitor local events in many emerging economies. This would be an enormous step forward to improve governance and foster responsible behavior in local governments

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